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WSJ: Bucksbaums Denied Board Seats ... Is That Fair?

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Talk about harsh. The Wall Street Journal is reporting that the Bucksbaums--the family that built General Growth Properties into the second largest mall owner in the country--will have no representation on the boards of directors of either of the two entities GGP is being split into as part of its restructuring.

Former CEO John Bucksbaum obviously bears a good deal of the responsibility for the straits General Growth faced. An aggressive series of deals in the early and mid 2000s left the company saddled with more than $27 billion in debt. The combination of the crash in commercial real estate values since early 2007 and the credit crunch meant it could not refinance debt it had coming due on assets that were no longer worth what the firm had paid. This ultimately forced the company to seek bankruptcy protection and restructure.

That process, for what it's worth, has gone much better than many expected. The company will emerge largely intact as two companies. It was not forced to sell off top assets. And it fought off a bid to be taken over by rival Simon Property Group. At its nadir, the company was delisted from the NYSE and traded on the pink sheets, bottoming out at about $0.25 per share. But its stock has since rebounded massively. In the process, the firm became a rarity--a company returned to the NYSE even before it emerged from bankruptcy. Today its stock trades north of $15 per share.

Bucksbaum, along with other members of GGP's management, paid a hefty price for what happened. Bucksbaum resigned as CEO and other members of the C-suite exited as well as new leadership was brought into place. Still, up until now, Bucksbaum has remained as chairman of the board.

The Journal story indicates, however, that Bucksbaum will lose that post. The family will retain a sizable financial stake in the two emerging companies, but will now have no say on the firm's future direction.

Is this a fair result? Wasn't it enough that the Bucksbaums ceded day-to-day control? Is it right that they will no longer have a place on the companies' boards as well?

Key excerpts from the WSJ story are below.

In a final slap to the family that founded mall giant General Growth Properties Inc., the overseers of the bankrupt company have decided against giving the Bucksbaums any representation on the company's boards or executive offices.

Even though founding family scion and former Chief Executive John Bucksbaum privately campaigned for a seat on either of General Growth's two new boards, the committee making the selections opted not to name him a director, according to people familiar with the matter. The Bucksbaums still will own roughly 7% of General Growth's stock even after the company goes through a $7 billion recapitalization as part of its exit from bankruptcy.

...

The omission from the board is a stinging rebuke for Mr. Bucksbaum in particular. Mr. Bucksbaum spent his entire career at his family's company, ascending to CEO in 1999. He presided over General Growth's rapid expansion in the past decade, when it boosted its debt to $27 billion to finance acquisitions.

General Growth's board removed Mr. Bucksbaum as CEO in October 2008 for failing to inform it about $100 million of loans his family trust made to two General Growth executives to help them cover margin calls on their General Growth stock holdings.

...

Mr. Bucksbaum had politicked to be named to one of the new boards. He called members of the committee of directors making the selections, as well as big investors including William Ackman of Pershing Square Capital Management LP, people familiar with the matter said. But the board-selection committee wanted to separate the new company from the troubles of the past, these people said.

...

Mr. Bucksbaum also has pledged that his own portion of a family trust will incur all losses from the loans to the two executives. His cousin, Mary Bucksbaum Scanlon, sued the family trust and its attorneys last year, alleging they mismanaged the trust by allowing the loans, among other things. The defendants have asked that the lawsuit be dismissed.

It is rare in the U.S. mall industry for a founding family to have no governing role in its company. Founders or their scions hold executive and board posts at each of the other five largest mall owners.

General Growth's new boards will feature few surprises, people familiar with the matter say. The larger company's board will include three Brookfield representatives, including Brookfield CEO Bruce Flatt as chairman. Also included are John Schreiber, a veteran of General Growth investor Blackstone Group LP, current CEO Mr. Metz and two holdovers, Sheri Rosenberg and John Haley.

The smaller company's board will include Mr. Ackman and two of his appointees. Others are a Brookfield appointee and Steven Shepsman, chairman of the equity committee in the bankruptcy case.

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Elaine Misonzhnik

Senior associate editor Elaine Misonzhnik has been writing for National Real Estate Investor since June 2006 and has covered commercial real estate for more than 12 years. She first became...
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