A Chicago mall developer's plan to buy Rouse Co. cleared two major hurdles yesterday when the Columbia-based company won shareholder approval for the sale and resolved a tax issue with the Internal Revenue Service that threatened to sink the $12.6 billion deal.
To end its IRS problem, Rouse agreed to pay $23 million in interest, a $21 million penalty and an extra dividend to its shareholders, according to a document it filed with the Securities and Exchange Commission. Rouse executives could not be reached for further comment.
The tax issue threatened Rouse's status as a real estate investment trust. Without REIT status, Rouse would not have been able to satisfy a condition of its sale to General Growth Properties Inc.
REITs are corporations that do not pay corporate income taxes if they comply with certain laws, including one that requires them to pay out 90 percent of taxable net income every year to stockholders in the form of dividends.
Rouse discovered it had non-REIT earnings and profits from a subsidiary that it thought it had switched to a taxable status, according to an SEC filing. It had not distributed those earnings to stockholders. Yesterday, it said it would pay out an extra dividend of $2.29 per share to stockholders today in addition to the interest and penalty payments.
Also yesterday, during a webcast, Rouse said it had won approval for the sale from more than two-thirds of its shareholders. The meeting lasted 10 minutes at the New York office of the law firm representing Rouse in the deal.
General Growth does not need approval from its shareholders for the sale, the Chicago developer said in an SEC document. The deal is scheduled to close Nov. 12, according to the two companies.
Yesterday's events capped a tumultuous few months for the companies since they announced the deal in August. One Rouse shareholder in Florida asked a Howard County judge to block the shareholder vote, arguing that Rouse did not get the best price for the deal. But the judge refused to do so.
Also, heirs of billionaire Howard Hughes voiced concern about their financial stake in Rouse and threatened to evaluate the "remedies" available to them. Rouse has not announced a resolution to that issue.