After months of deliberation and deal-making, Bill Ackman’s Pershing Square Capital Management has struck a deal to invest $900 million in Howard Hughes Holdings (HHH), effectively giving the hedge fund a controlling stake in the commercial real estate giant.
As part of the deal, Pershing Square will acquire 9 million newly issued shares of HHH for $100 per share, a premium of 48 percent above the $67.71 the stock closed on Friday, according to a Monday announcement.
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Pershing Square will now own a 46.9 percent stake in HHH and has agreed to “limit its voting power” to 40 percent and its “beneficial ownership” to 47 percent, the announcement said. In addition, HHH will pay Pershing Square a quarterly base fee of $3.75 million and an undisclosed quarterly management fee.
“HHH has built substantial value for shareholders in recent years that has largely gone unrecognized due to the high cost of capital that the market assigns to the company in light of its pure-play exposure to real estate development and community creation,” Ackman said in a statement.
“We believe that HHH is a superb platform to build a faster-growing, high-returning holding company that will acquire control of companies that meet Pershing Square’s criteria for business quality and durable growth,” Ackman added.
The deal caps a long back-and-forth between HHH and Ackman, as Ackman has tried to get a controlling interest in HHH.
In January, Ackman floated an idea to purchase 11.7 million shares of HHH in a deal valued at $1 billion, along with a $500 million share repurchase program that would increase Pershing Square’s ownership stake in HHH from 38 percent to as much as 69 percent.
The next month, Ackman put forward a new deal that would raise the price per share from $85 to $90 and give Pershing Square a 48 percent ownership interest. However, HHH rejected the bid in March, saying it was “not acceptable in its current form” but was open to exploring ”potential alternatives.”
The deal also represents a homecoming of sorts for Ackman, who acted as chairman of HHH’s board until last year.
Ackman will become executive chairman of HHH’s board of directors, while Ryan Israel, currently Pershing Square’s chief investment officer, will become HHH’s chief investment officer, according to the announcement.
HHH’s leadership team, meanwhile, will continue to be led by CEO David O’Reilly and remain unchanged with “expanded roles and responsibilities,” the announcement said.
Also part of the deal, Pershing Square will provide HHH with “investment, advisory and other ancillary services,” as well as assist HHH in “identifying and hedging macro-related risks,” according to the announcement.
“This transaction is the result of a rigorous process overseen by HHH’s special committee, which included evaluation of each of Pershing Square’s proposals, feedback from HHH stockholders and robust negotiations with Pershing Square’s principals to reach a mutually favorable outcome,” Scot Sellers, chairman of HHH’s special committee, said in a statement.
“We believe this agreement not only reflects the value that HHH has created in recent years, but it also positions the company to transform its strategy, with enhanced value-creation opportunities and upside potential, while improving its credit profile,” Sellers added.
Isabelle Durso can be reached at idurso@commercialobserver.com.