Bill Ackman and his fund are big fans of Pershing Square Capital Management, a real estate development company. Howard Hughes Holdings(NYSE: HHH). In the year In 2010, Pershing, along with several large private equity firms, recapitalized the company in a rights offering valued at $47.62 million.
While Ackman is pleased with the administration and its accomplishments over the past decade and a half, he has little to show for it. Before Ackman and Pershing intervened, the stock returned 35% between 2010 and August 2023, equivalent to a 2.2% compound annual gain.
However, Ackman did not give up. On the contrary, the billionaire is doubling down. He now proposes to buy a large amount of the remaining public float because he wants to hold the stock “forever”.
root The proposal The Pershing Square holding company will form a new subsidiary to acquire more than 11.7 million shares at $85 per share in a transaction valued at $1 billion, according to a letter to Howard Hughes’ board of directors. There were more than 31.2 million shares outstanding on January 13.
In addition, Pershing will conduct a concurrent $500 million repurchase program at $85 per share of more than 5.8 million shares from a public float, backed by new bonds issued by the company. The subsidiary created by Pershing would eventually merge into Howard Hughes and keep the same management team in place.
The $85 offer represents an 18.4% premium to Howard Hughes on Jan. 10 and a 38.3% premium since Aug. 6 of last year, when Pershing indicated in a Form 13D filing with the Securities and Exchange Commission that it was considering such a valuation. Marketing. Pershing owned about 38% of the stock before the decision.
If approved, the deal would increase Pershing’s stake to somewhere in the range of 61.1% to 69.2%. It depends on how all shareholders respond to the agreement. Shareholders can take the $85 in cash or roll over their positions to the post-merger company. It aims to end up with a public float of 31% of the outstanding capital.
Ackman estimates that if all shareholders participating in the cash transaction chose to cash out, 56.4% would receive cash as a pro-rated outcome. The company will effectively retire by buying back more than 5.8 million shares. If all shareholders choose to float their positions, shareholders who control about 38% of the public float will exchange $85 in cash, and Howard Hughes will add $500 million in capital to its bond financing account.
In a letter to Howard Hughes, Ackman wrote: “We’re simply all in, and we want the Pershing Square Holco investment to be a permanent holding at HHH.”
Howard Hughes operates one of the largest portfolios Master planned communities (MPCs) covers 101,000 acres in six US states from New York to Hawaii. MPCs are communities tailored to meet the needs of their residents and are designed to provide a mix of retail, residential and commercial developments, a mini-city with many amenities.
Until recently, Howard Hughes owned other exclusive real estate assets, including the Las Vegas Aviators Triple-A minor league baseball team, an attached ballpark, and 80% of the air rights above the Fashion Show Mall in Las Vegas. These properties were operated in the company’s seaport division.
Recently, Howard Hughes acquired the Seaport properties back in 2015 Seaport Entertainment Group. Pershing said in a recent letter to shareholders that it had received and retained the outstanding stock and approved the transaction. Ackman said he sees “huge embedded potential in his unique portfolio of assets.” He also said the move positions Howard Hughes as a pure-play MPC company with the best decades of growth.
Howard Hughes management believes the company is significantly undervalued and has previously issued a unit-of-the-parts (SOTP) analysis. He estimates the company’s value at $118, with MPC’s assets accounting for the majority of its value. SOTP valuations, while compelling, may take some time for the market to fully appreciate, so a spin on seaport assets looks like a good move to create shareholder value. With Ackman getting into everything, it might be time to give this one another look if investors haven’t already.
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Bram Berkowitz It has no place in the said shares. He has positions in the Motley Fool and recommends Howard Hughes and Seaport Entertainment Group. The Motley Fool has Disclosure Policy.
