Billionaire investor Bill Ackman, through his Pershing Square Holdings Group, is orchestrating a significant transaction involving Howard Hughes Holdings Company (HHH), where Pershing Square already holds a substantial stake. This move is not just about acquiring control but represents a strategic pivot for Ackman’s firm towards managing and operating businesses, drawing parallels to Warren Buffett’s initial venture that evolved into Berkshire Hathaway (BRK-A, BRK-B). Ackman envisions Howard Hughes Holdings becoming a modern-day equivalent, acquiring controlling interests in various operating companies.
The deal, as reported by CNBC’s Andrew Ross Sorkin, is complex. Shareholders of Howard Hughes can choose to cash out at $85 per share — a 38.3% premium over the stock’s pre-announcement price — or roll their shares into the new entity. Currently, the stock is trading at $77.97, up 8.62%. This $85 per share price also represents an 18.49% premium over Friday’s $71.78 closing price. The transaction involves Pershing Square providing $1.5 billion in cash, supplemented by a new bond issuance, aiming to secure enough shareholder participation to effectively take control, even though Howard Hughes will remain a public company.
This acquisition could serve as a foundational step for Pershing Square to establish a permanent capital vehicle, similar to what was attempted with an earlier withdrawn IPO plan for Pershing Square itself. The idea is that this structure would allow for reinvestment in new ventures or acquisitions from the cash flow generated by Howard Hughes, without the typical pressures of returning capital to shareholders annually.
Howard Hughes has been an investment for Pershing Square for a long time, but it has been an underperformer in terms of stock price and dividend yield. Ackman’s belief in the potential of Howard Hughes to generate significant cash flow in the coming years is central to this deal. The expectation is that with the right management and strategy, Howard Hughes could start yielding substantial EBITDA, which could then be used to buy other businesses, mirroring the investment strategy famously used by Buffett.
The transaction requires shareholder approval, adding another layer of complexity. Shareholders can choose to roll their shares into the new structure or opt for cash, which means the deal’s success hinges on enough shareholders deciding to stay invested in the vision that Ackman is selling. This approach is somewhat akin to a take-private transaction, yet it will maintain public company status for Howard Hughes.
Ackman’s deep understanding of Howard Hughes stems from his involvement with General Growth Properties, from which Howard Hughes was spun off. His track record with General Growth, which was acquired in 2018 by Brookfield Property Partners, was one of his most significant successes, but Howard Hughes has not mirrored that performance, leading to a somewhat lackluster stock performance over the years. Despite this, Ackman’s confidence in the management and the business model of Howard Hughes suggests a long-term strategy aimed at turning around its fortunes.
This deal, if successful, could mark a new chapter for Pershing Square, transitioning from a firm primarily known for its activist investment strategies to one that also operates companies directly. It’s a bold move that could either cement Ackman’s reputation as a visionary investor like Buffett or highlight the risks of such ambitious restructuring in a market that has seen Howard Hughes struggle.
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