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Judge could tip General Growth's future

By Ilaina Jonas

NEW YORK (Reuters) - The top two U.S. mall owners will square off before a judge on Wednesday to shape the outcome of the largest U.S. real estate bankruptcy ever.

General Growth Properties Inc <GGWPQ.PK> will ask Judge Allan Gropper of the federal bankruptcy court in Manhattan to give it six more months to be the only party that can present a plan to emerge from bankruptcy. It expects to file the plan by the end of June and have it confirmed by October 5, according to court filings.

On the other side are Simon Property Group Inc <SPG.N>, which wants to buy General Growth, and the official committee of unsecured creditors.

The unsecured creditors committee called the six-month extension excessive and said a 45-day extension would be more acceptable.

"They (Simon and the unsecured creditors) don't want the debtor to have a stranglehold on the process for six months," said Barry Adler, a New York University law professor.

The two sides could strike a compromise before the hearing, or the judge could grant General Growth's request, reject it or split the difference himself, pushing a resolution forward.

"Equity and management (of General Growth) want the ability to tell any bidder that comes along that if you want the assets right now, if you don't want to wait six months when things may change and go bad for them, then what you're going to have to give is a taste, a payoff," Adler said.

The equity committee supports the six-month extension, according to a court filing.

Each side argues that its approach would lead to more and better offers for the company.

In court filings, General Growth said its plan is simply a "stalking horse" -- a bottom offer that others would have to beat if they wanted to buy the company.

Another to call for a compromise came from a group representing heirs of Howard Hughes, who proposed a three-month extension. Their ties to General Growth date to 2004, when the mall company acquired Rouse Cos, a developer of malls and master-planned communities.

In 1996, Rouse bought the master-planned community of Summerlin, Nevada, from Hughes Corp. The sales agreement called for the group to be paid in stock for the value of land left at the end of 2009.

A three-month extension would allow both proposals to be further developed and give others the chance to submit a bid, the representatives said.

General Growth, meanwhile, has agreed to open its books to Australia-based Westfield Group <WDC.AX> and several institutional investors, according to a source close to the company. Under General Growth's plan, interested investors would have 60 days to submit an offer.

Westfield, the world's biggest mall owner, is probably not interested in the whole company, real estate experts say. But it may want to partner up to acquire certain assets. Westfield has declined to comment on General Growth.

China Investment Corp, the $300 billion sovereign wealth fund, also is looking at General Growth, said a source briefed on the situation. However, the source added that CHIC is also considering a fair number of other U.S. property investments.

The Simon side contends, however, that the there is no need for additional time since General Growth already has an offer.

Simon, the largest U.S. mall owner, has offered $10 billion for General Growth, under a plan to pay off unsecured creditors in cash and give equity holders about $6 a share. The official committee of unsecured creditors supports the Simon proposal.

Simon's offer includes a spin-off of the master-planned communities that it values at about $3 per share.

Investors could opt for Simon shares instead of cash.

Chicago-based General Growth's plan calls for Brookfield Asset Management Inc's <BAMa.TO> to inject capital into General Growth to help it emerge from bankruptcy as a stand-alone company. That plan values General Growth at $15 per share and would repay holders in cash with interest.

The plan calls for General Growth to be split into two companies. The first would hold the bulk of the company's value -- its high-performing malls. The second, called General Growth Opportunities, would give shareholders the less attractive assets --its residential land development business, 13 "underwater" malls and about 24 non-Indo-European malls.

But the offer to pay creditors in cash depends upon a number of things all falling into place: raising $2.8 billion though stock sales, selling $1.5 billion of new debt and selling enough assets to clear $1 billion.

Since many of General Growth's properties have huge mortgages, that would mean selling about $4 billion of assets to net $1 billion in cash, according to Green Street Advisors.

Because of those conditions, some analysts say that Simon will ultimately clinch a deal once it sweetens its offer.

"A topping bid by Simon is still the most likely outcome, and we continue to believe that a bid in the $12 to $15 per share range would represent a fair outcome for General Growth shareholders and a fully justifiable price for Simon," Cedrik Lachance, Green Street senior analyst said.

Separately, General Growth said on Tuesday it plans to list its common shares on the New York Stock Exchange and to begin trading on March 5 under its former symbol "GDP."

The case is In re: General Growth Properties, Inc et al, U.S. Bankruptcy Court, Southern District of New York, No. 09-11977.

(Reporting by Ilaina Jonas; additional reporting by Paritosh Bansal; Editing by Gary Hill and Derek Caney)

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