A has proposed a deal to merge a newly formed subsidiary with , the latest step in his pursuit of the real estate developer he helped lead.
Investment fund run by Bill Ackman is offering Howard Hughes shareholders $85 per share, most of which would be paid in cash, the company said in a letter to investors posted on its website. That would represent a 38.3% premium over Howard Hughes’ share price in August, when Pershing Square expressed interest in a merger.
Ackman has been working on structuring a deal for months, saying in August that he was collaborating with Jefferies Financial Group on a possible acquisition of all of the Howard Hughes shares that Pershing Square did not already own. The investment firm’s funds already hold a 37.6% stake in the company.
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A deal to merge a Pershing Square subsidiary with Howard Hughes would give Ackman, who was president of the real estate company, the chance to expand its reach. He said he would seek to transform Howard Hughes, known for its investments in master-planned communities and commercial properties, into a “modern Berkshire Hathaway” by using its capital to invest in new companies.
“With apologies to Mr. Buffett, HHH would become a modern-day Berkshire Hathaway that would acquire controlling interests in operating companies,” Ackman said in the letter. Howard Hughes would invest excess capital from its new subsidiary, in addition to potential proceeds from the transaction, “in new companies and assets with the objective of increasing the intrinsic value per share of HHH at a high long-term compound rate of return.”
A representative for Howard Hughes did not immediately respond to requests for comment.
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Long-term owner
For the deal, Pershing Square’s holding company would buy about 11.8 million shares from shareholders unaffiliated with Ackman’s company. Howard Hughes would also repurchase $500 million in shares, financed through newly issued bonds, according to the letter.
Howard Hughes shares soared on the news, rising 9.4% to US$78.50 at 7:54 am in pre-market trading in New York this Monday (13).
Ackman said he expects all current Howard Hughes employees to keep their jobs. Howard Hughes’ senior leadership would be led by Pershing Square executives, with Ackman taking on a role as president and CEO. The real estate company’s current executives, including CEO David O’Reilly, would lead its main property unit, which would be called Howard Hughes Corp.
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Ackman said he may invite a “small consortium” of partners to participate in the deal. These investors would go through an entity controlled by Pershing Square, requiring them to be subject to a multi-year lock-up agreement, he said.
“We firmly believe we are the right owner for the long term,” Ackman said. “With reference to the name of Howard Hughes Holdings – one of the world’s greatest aviators and entrepreneurs – let’s fly this bird.”
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