Bill Ackman: I'm not a Crybaby Shareholder
Companies / Investing 2014 Oct 13, 2014 - 05:37 PM GMTBy: Bloomberg
In an interview with Bloomberg's Hans Nichols from the Euronext Amsterdam, Pershing Square Holdings Founder and CEO Bill Ackman said, he's preparing to buy a 'decent-sized stake' in a U.S. based company, "The cash that we've raised we intend to use for a new commitment. So we have a new investment we're going to announce probably in the next 45-60 days, and the capital will go for that new investment."
Ackman told Nichols that Pershing Square can exist and do well without him," I'm not planning on going anywhere. But we've actually built Pershing Square Holdings with a key man provision that says if I were to disappear, then shareholders could elect -- would have vote to continue the entity and I think that vote would be a favorable vote. It's been a very good, it's been a good place to have capital for the past 11 years."
Ackman and Nichols also discussed Allergan, Herbalife and Fannie Mae and Freddie Mac.
Highlights:
On whether he considers himself a crybaby shareholder:
"No. Maybe Carl Icahn might call me that in the old days, but no. The answer is -- I think the reference was to the fact that in those days governance was not something top of mind for many corporations. I think it's become much more top of mind as a result of shareholder activists and shareholders being more engaged in the businesses that they own. So I think it's a very positive trend."
On seeing 'trades' to the end of the earth:
"We do not even called them trades. No, I mean, they're investments. Pershing Square Holdings, we think of it like an investment holding company. We are not Berkshire Hathaway, but I think that's not a bad business model. You think about a long duration investment strategy. We will only invest in the public markets but we will buy large stakes in public companies like we did in the past. This will enable us to have a capital base that matches the duration of our investments."
On thinking of himself more like a Warren Buffett instead of a Carl Icahn:
"I think -- I think that's a better choice. I mean, I'm friendly with Mr. Icahn and he's done a fabulous job but in terms of investment strategy, we're much more like Berkshire Hathaway than Icahn."
On his definition of an activist investor:
"I think it's not necessarily related to duration. I mean, there's all different kinds of shareholder activism and there are all different ways to make money. What we like about what we do is we buy a large minority stake in an underperforming business. We will work with the management teams and boards and shareholders to make changes that help the business become more profitable. And we'll get the benefit of that. Typically, our typical holding period for an active investment is four, five, six years. What's good for other shareholders is most of the capital in these large companies. And as a result, shareholders have very little input over the companies that they invest in. But because we are sort of a lead shareholder, we can create options, alternatives, sometimes management change, sometimes board change, and all of the shareholders benefit. We do all of work and all the shareholders benefit. The quid pro quo is we get supported by the large and the small shareholders."
On securing a meeting with the directors at Allergan:
"Allergan we have never met the directors. They've not been willing to meet with us. There are some serious governance issues at Allergan, but I think, ultimately, we will get to the right answer. shareholders have called for a special meeting. We're leading that charge. That meeting will take place December 18. And I think a new board will likely be installed at that date."
On legal uncertainty on whether or not he'll be able to vote with his 9.7% share:
"I think that's very remote consequence. I think that will be settled by the courts by the end of the month, hopefully well before December 18."
On whether he needs to have an entirely new slate of directors or just a few at Allergan:
"Look, we don't think that the Allergan board has managed its process well. Valeant, we have made a very full offer for the company. That doesn't mean they have to sell at that price. But they've been unwilling to engage. Valeant has said they're prepared to raise their offer. There have been some suggestions in the press that that offer increase could be a material increase, but they've asked for engagement with the company and with due diligence there might be an opportunity for them to pay even more. And we think -- there's been talk in the press about activists and some other potential interest in the company. We think it's time for the company to explore opportunities. I mean, remember, this stock was $116 stock before the bid -- before we announced the bid in April. Today, it's $190 stock. It will not justify this value as an independent company; it can only justify this value, in our view, in the event the business is merged or sold to someone else. And we think that process should start soon."
On where Herbalife stands with the latest in Venezuela:
"Actually, I think the most significant development of the quarter may be Venezuela. I mean, you see companies like Colgate writing off their entire operation. The exchange rate in Venezuela is 103 to 1. And Herbalife has been marketing their revenues and earnings from Venezuela at now 10 to 1. So things are 90 percent worse than their reported earnings. I think what people don't realize is that Venezuela, even though it's something like 4% of revenues, even as they reported, it's about we think about 20% of the operating income of the business. So if Venezuela is accounted for correctly, their earnings would decline dramatically. We think we'll see what they do. But we'd be astonished if Pricewaterhouse allows them to continue to account for their revenue and earnings from Venezuela at a 10:1 exchange rate when the market is 103:1. Even the official market today is 50:1. Supposedly they're paying their distributors based on a 50:1 royalty exchange rate. How can they be booking their revenues at 10:1? So the stock is about 10 percent below where we originally shorted it. I don't have a precise calculation, but we're, at a minimum, we're either close or getting very close to being in the money on that investment."
On whether the rail business is 'hunt or be hunted':
"Actually, so Hunter has made the case for consolidation in the industry. I mean, there's serious congestion. A lot of a can be dealt with through some mergers that are actually pro-competitive. Actually, one of the interesting things about Pershing Square Holdings I was thinking about earlier is that stock trades 6 hours kind of earlier, if you will, than the U.S. is exchange. So I'm told early trading, CP is up something like 6% or 7% of the market. Well, there's no way to really -- there's very little volume that you can trade in the U.S. market now, but you can actually buy Pershing Square Holdings and about -- almost 20% of our capital is in Canadian Pacific. If there was news on Allergan in the morning, people should be able to invest in Pershing Square Holdings as a way to participate in it. So I think an interesting element here, because we're European-listed entity, but our holdings are principally U.S. and they're very concentrated, it will be interesting to see how people use Pershing Square Holdings as a way to invest when the U.S. markets are closed."
On what shareholders are getting a piece of investing in Pershing Square:
"They're getting a piece of the Pershing Square team. We brought the entire team, 61 people, from Pershing Square. Our entire organization came for the listing. And the reason why we brought the whole team is this a -- I get a lot of the visibility, the likes of Bloomberg interviewing me on television, but the work is being done by a very talented investment team and very talented legal team, events team. It's a big operation. This kind of strategy requires a lot more than just an investment profession."
On whether Pershing Square Holdings can exist without Bill Ackman:
"I think that's true. If you look at -- we've had some Pershing Square alumni spin off and launch successful firms. You've Scott Ferguson at Sachem Head Capital, Mick McGuire at Marcato Capital. The people who are left Pershing, we have a senior member of the team who'd been with us longer than Scott and Mick had been with us, leave the firm. I'm not planning on going anywhere. But we've actually built Pershing Square Holdings with a key man provision that says if I were to disappear, then shareholders could elect -- would have vote to continue the entity and I think that vote would be a favorable vote. It's been a very good, it's been a good place to have capital for the past 11 years. And the benefits of being public is we want to be here for the next -- the exchange has been around for 415 years, or whatever the period is; we want to be around for another 400 years. I think that would be great."
On Fannie and Freddie:
"Fannie and Freddie actually -- we bought a lot more Fannie and Freddie stock in the last week or so since the adverse courts decision. A lot, I think we increased our position by about 20%. Most of it with three total returns because there is some restriction on our ability to buy more stock. But we think it's going to be a very good investment. It's a small position for us; it's about 2.5% of our capital base. But what's interesting about the court's decision is the judge weighed in on the takings plan, even though it's not the court that handles takings plan. And his arguments were principally, well, the government is not allowed to take private property without just compensation, but if the shareholders retain a meaningful economic interest, an economically beneficial interest in the corporation, then it's not taking. And the judge cited the fact that the stock traded on the -- continues to trade in the market and the pink sheets, large volume, is saying well the shareholders therefore continue to have a meaning economic interest."
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