New York :  General Growth Properties, the second biggest US mall owner, won bankruptcy court approval for an auction process that makes a group led by Brookfield Asset Management property the first bidder. General Growth fell 11 per cent in New York trading.

US Bankruptcy Judge Allan Gropper in Manhattan approved General Growth's plan over one proposed by the country's biggest mall owner, Simon Property Group.

It gives Brookfield, Fairholme Capital Management and Pershing Square Capital Management warrants to buy stock in the reorganised company in exchange for financing.

"As I understand the process, it is intended to open rather than close, the bidding," Gropper said during the hearing, adding that General Growth's equity holders, creditors and board all backed the Brookfield bid.

General Growth, based in Chicago, said the bid is intended to serve as a so-called stalking horse for higher offers or help raise money from capital markets. Simon said the warrants would dilute General Growth's value, prompting the Indianapolis-based company to withdraw from bidding. Simon made its last offer for General Growth last night.

Hasty decision

"We are disappointed that the GGP board hastily decided in less than 24 hours to accept substantially less value," Simon CEO David Simon said in a statement.

"GGP's decision to proceed with a transaction that transfers hundreds of millions of dollars in value to the Brookfield consortium has caused us to conclude that we cannot reach a mutually beneficial transaction with GGP."

General Growth dropped $1.77 to $14.07 yesterday in New York Stock Exchange composite trading. Simon rose 80 cents, or 0.9 per cent, to $85.68.

"We think that the business is worth materially more than Simon thought it was," Glenn Tongue, managing partner of T2 Partners, which owns more than two million General Growth shares, said.

"We're thrilled to have a mechanism through which we can own this company on a long-term basis, until it gravitates up to its intrinsic value."

Lorraine McGowan, a partner in the New York office of Orrick, Herrington & Sutcliffe, said before yesterday's hearing that the "business judgement rule," which says the bankruptcy court shouldn't supplant the corporate governance of a company, would work in General Growth's favour.

No substitute

"The issues have been carefully vetted and negotiated by the board," Gropper said. "This court cannot and will not substitute its judgement for that of the board."

The Brookfield-backed proposal is worth $7 billion in equity. The group also agreed to loan the company as much as $1.5 billion if it can't raise the funding elsewhere.

General Growth lawyer Marcia Goldstein said the financing will allow the company to choose a final best offer and file its Chapter 11 reorganisation plan by mid-July.

Brookfield's plan "gives all shareholders the chance to participate in the tremendous upside of this company for a very, very long time, as opposed to being cashed out at the bottom of the market," Cyrus Madon, senior managing partner at Brookfield, said.

"We're going to be working very hard to get through the rest of the bankruptcy process with the company..."