Ackman raises bid for developer Howard Hughes to create 'modern-day Berks'

Activist investor Bill Ackman’s hedge fund, Pershing Square Capital Management — known on Wall Street for its aggressive style — has improved its offer to acquire more shares of the smaller U.S.-based real estate developer Howard Hughes. Ackman says he wants to transform Howard Hughes into a second Berkshire Hathaway, like Warren Buffett once turned a struggling textile manufacturer into the world's most valuable investment company. The announcement of the revised offer sent Howard Hughes shares tumbling.

Ackman has submitted a proposal to acquire 10 million newly issued Howard Hughes shares at $90 apiece, up from his January offer of $85 per share.

The transaction does not require regulatory approvals or a shareholder vote, meaning it could be completed in a few weeks, according to CNBC. If the deal comes to fruition, Pershing Square’s stake in Howard Hughes will grow from 37.6% to 48.0%, and Ackman will take over as CEO of the real estate development company. Additionally, Pershing Square will receive an annual fee of 1.5% of Howard Hughes's equity market capitalization. For context, the January proposal sought to increase its stake to 61-69%.

After Ackman announced the revised proposal, Howard Hughes stock fell almost 5% after hours in New York yesterday, February 18, before dropping another 4.5% at the start of premarket trading today. During the regular session yesterday, it had spiked 6.8% in anticipation of the deal.

“We will make available the full resources of Pershing Square to HHH to build a diversified holding company, or one could say, a modern-day Berkshire Hathaway,” Ackman claims. His plan is to invest in promising companies, as Buffett’s investment fund famously does.

Ackman says he was inspired by the unconventional career of the “Oracle of Omaha.” Buffett, now 94 years old, started out as an activist investor and hedge fund manager but shut down his private partnerships in the 1960s to focus on Berkshire Hathaway, which was a struggling textile company at the time. Today, Berkshire, valued at more than $1 trillion, owns businesses in insurance, energy, rail transportation, and retail. It also has an immense investment portfolio and over $300 billion in cash.

Ackman stressed that Howard Hughes would continue developing large residential communities. “It's a lot better than a dying textile company,” he remarked, alluding to Berkshire’s past.

Ackman is known for his aggressive, activist style, exerting pressure on management and making large bets on stock movements. One of his most high-profile deals was for McDonald's in 2005-2006. He acquired a minority stake at the time and pushed for a business restructuring. McDonald's eventually made some changes, such as accelerating the closure of unprofitable restaurants and buying back stock. By the time Ackman sold his stake in 2007, the share price had nearly doubled.

At the onset of the COVID-19 pandemic, Ackman foresaw a market crash and invested in credit default swaps to hedge against corporate bond defaults. When the markets crashed, the value of these swaps soared, which earned Ackman $2.6 billion in just a month.

However, not all of Ackman’s investments have been so successful. In the mid-2010s, he made a massive bet on the Canadian pharmaceutical company Valeant, convinced that its aggressive acquisition strategy would drive exponential growth. A series of scandals, investigations, and stock crashes ensued, and Ackman lost more than $3 billion.