Falling back on family ties when firms go bust

WHEN General Growth Properties (GGP), the second largest US shopping mall manager filed for bankruptcy in April 2009, after amassing US$27 billion in debt during an acquisition spree, its directors were faced with the choice between a US$10 billion takeover offer from Simon Property Group, a leading competitor, and a US$2.6 billion equity infusion from Brookfield Asset Management, a Canadian investment firm.

The board was split. While one half (controlled by descendants of the firm's founders) preferred an offer from the investment firm, the other (controlled by hedge fund investors) favoured the offer from the strategic bidder. It was the setting, as real-estate analyst Jim Sullivan noted in TheWall Street Journal, for some very interesting board discussions. Anecdotal evidence like the one above suggests that different types of large shareholder blocks view bankruptcy proceedings very differently.

Institutional investors and professional asset managers, motivated by the need for a purely financial resolution, are looking for ways to minimise their loss. Families, however, have a more complicated set of priorities. There are the emotional ties (with the firm and its employees) to consider, as well as their reputation and family name and, in many situations, a larger proportion of personal wealth.