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Billionaire investor Bill Ackman has said he is seeking to build a “modern-day Berkshire Hathaway” that takes control of companies in an attempt to transform his hedge fund into a diversified financial giant.
Ackman’s Pershing Square on Monday offered to buy millions of shares it does not already own in Texas real estate developer Howard Hughes Holdings, in a deal worth more than $1bn.
The proposed purchase is part of an aggressive push by Ackman to reinvent his hedge fund, which at present buys minority stakes in listed companies, into a large financial group with the capacity to compete with powerful private equity buyers and other corporations on large takeovers.
“With apologies to Mr Buffett, [Howard Hughes] would become a modern-day Berkshire Hathaway that would acquire controlling interests in operating companies,” Ackman said in an investor letter on Monday, referring to the company built by Warren Buffett.
Pershing Square is seeking to lift its stake in Howard Hughes from about 38 per cent to as much as 69 per cent. The hedge fund offered to pay $85 per share, compared with Howard Hughes’ $71.78 closing share price on Friday. Its shares jumped 9.3 per cent on Monday following Ackman’s announcement.
Howard Hughes is valuable to Ackman because the investor thinks the group’s cash flows, property holdings and balance sheet can provide billions of dollars in cash to fund acquisitions.
Under the proposed deal, Ackman would become Howard Hughes’ chief executive and also bring in his investment team to identify takeover targets.
Pershing Square could combine Howard Hughes’ financial firepower with its own funds to identify large takeover targets, according to people briefed on his thinking. The deal requires approval from a majority of Howard Hughes’ minority shareholders.
Last year, Ackman opened Pershing Square to an outside investor for the first time, selling a 10 per cent stake at a $10bn valuation.
Ackman’s proposed acquisition of Howard Hughes is the culmination of more than a dozen years in which Ackman has chaired and built up the property operator, which once was a collection of properties spun off from mall operator General Growth Properties during its financial crisis-era bankruptcy.
During the 2008 crisis, Ackman purchased a large stake in General Growth as it collapsed into bankruptcy. Ackman and other investors including Brookfield then recapitalised General Growth and made billions of dollars from a recovery in the property market.
In 2012, Ackman exited his investment in the mall operator by exchanging his shares for non-retail properties it owned, including large housing communities in Las Vegas, Houston and Hawaii and other properties in areas such as Manhattan.
Those properties had decades earlier been acquired by Howard Hughes, who from the 1920s to his death in the 1970s was one of the US’s most closely followed businessmen because of his large stakes in companies including airline TWA and Hollywood production companies. Towards the end of his life, Hughes acquired vast swaths of property to shield his empire from taxes, which were later acquired by General Growth.
In his 2012 asset swap, Ackman renamed the property holdings Howard Hughes in a nod to the mercurial financier and listed the company on the New York Stock Exchange. However, Ackman has admitted that the property company did not garner a strong following among stockholders and has languished as a public company.
Many followers of Ackman long expected he would either merge his hedge fund with Howard Hughes or simply acquire it. After studying a merger proposal, which would have redomiciled his Amsterdam-listed fund Pershing Square Holdings to New York, Ackman found that deal unworkable and instead built a consortium of employees and outside investors to acquire a majority of Howard Hughes.
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