(Bloomberg) - Pershing Square Capital Management LP has proposed a deal to merge a newly formed subsidiary with Howard Hughes Holdings Inc., the latest step in Ackman’s pursuit of the real estate developer he used to help lead.
The investment firm run by Bill Ackman is offering Howard Hughes holders $85 a share, a majority of which would be paid in cash, the company said in the letter to investors posted on its website. That would represent a 38.3% premium to Howard Hughes’s stock price in August, when Pershing Square expressed interest in a tie-up.
Ackman has been laying the groundwork for a deal for months, saying in August that he was working with Jefferies Financial Group Inc. on a possible acquisition of all the shares in Howard Hughes that Pershing Square didn’t already own. The investment firm’s funds already own a 37.6% stake in the company.
A deal to merge a Pershing Square subsidiary with Howard Hughes would give Ackman, who was formerly chairman of the real estate company, a chance to expand its reach. He said he would seek to take Howard Hughes, known for its investments in master-planned communities and retail properties, and turn it into a “modern-day” Berkshire Hathaway Inc., using its cash 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 the excess cash of its new subsidiary as well as potential cash from the transaction “in new companies and assets with the long-term goal of growing HHH’s per-share intrinsic value at a high compound rate of return.”
A representative for Howard Hughes didn’t immediately respond to requests for comment.
Long-Term Owner
For the deal, Pershing Square’s holding company would buy about 11.8 million shares from stockholders not affiliated with Ackman’s company. Howard Hughes would also repurchase $500 million of stock, financed by newly issued bonds, according to the letter.
Howard Hughes shares surged on the news, rising 9.4% to $78.50 at 7:54 a.m. in premarket trading in New York Monday.
Ackman said he expects all current Howard Hughes employees to retain jobs. Howard Hughes’ senior leadership would be led by Pershing Square executives, with Ackman taking a role as chairman and chief executive officer. 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.
Ackman said that he may invite a “small consortium” of partners to join in on the deal. Those investors would go through an entity controlled by Pershing Square, requiring them to be subject to a multi-year lockup agreement, he said.
“We strongly believe that we are the right long-term owner,” Ackman said. “With reference to Howard Hughes Holdings’ namesake – one of the world’s greatest aviators and entrepreneurs – let’s give this bird some wings.”
By Patrick Clark and Jack Sidders
