- Howard Hughes shares surged on Tuesday after Bill Ackman hinted at a major announcement.
- Ackman’s Pershing Square raised its takeover offer for Howard Hughes to $90 per share.
- The billionaire investor has been pursuing Howard Hughes in a bid to create the next Berkshire Hathaway.
The move:
Howard Hughes Holdings shares surged in the last hour of trading on Tuesday after billionaire investor Bill Ackman said on X he would be making an announcement.
The stock closed 6.8% higher, at $80.60 apiece, before Ackman’s Pershing Square announced at 4 p.m. ET that it had hiked its takeover offer for the real estate company.
Pershing Square proposed to acquire 10 million newly issued Howard Hughes shares at $90 per share — up from $85 per share in its original January proposal.
Howard Hughes shares fell 4.6% in after–hours trade. The company has a market cap of around $4 billion.
Why:
Ackman has been pursuing Howard Hughes for months in a bid to create the next Berkshire Hathaway.
Berkshire Hathaway was a textile company when Warren Buffett acquired it in 1965. The legendary investor and his partner Charlie Munger then merged two other companies — Diversified Retailing and Blue Chip Stamps — with Berkshire in 1978 and 1983, respectively, before shutting the textile firm’s failing business in 1985. Today, Berkshire is a $1 trillion holdings company with various businesses.
Ackman, in his preview for Pershing Square’s latest takeover proposal, again cited Buffet as an inspiration.
“When I entered the investment business at 26 and started a small hedge fund with $3 million under management, I thought that perhaps some day I could build a diversified holding company like Berkshire with an extraordinary long-term record,” wrote Ackman on X on Tuesday.
Pershing Square’s latest proposal for the real estate development and management company came after it proposed in January to merge a newly formed subsidiary with Howard Hughes. It also offered to buy 11.8 million Howard Hughes shares at $85 a share from non-Pershing Square affiliated shareholders.
Under the latest proposal, Ackman would become chairman and CEO of Howard Hughes.
Through the deal, Howard Hughes could become “a “modern-day Berkshire Hathaway that would acquire controlling interests in operating companies,” Ackman said in a January letter to the real-estate firm’s board. The investor was the chairman of Howard Hughes’s board from 2010 to May 2024.
Howard Hughes confirmed the latest offer in a press release on Tuesday and said it’s reviewing the unsolicited revised proposal.
It’s not the first time Ackman is attempting to follow in Buffett’s footsteps. In 2015, Pershing Square acquired a stake in Valeant Pharmaceuticals International and Ackman likened Valeant to a “very early stage Berkshire Hathaway.” The investor sold his entire stake in 2017 at an estimated loss of $3 billion.
What it means:
The swift reversal in Howard Hugh’s share price on Tuesday suggests investors were disappointed by Pershing Square’s offer.
Pershing Square’s offer falls short of Howard Hughes’ net asset value of $118, Piper Sandler analysts Alexander Goldfarb and Connor Mitchell wrote in a Tuesday note.
“The stock’s lackluster response to the original January 13 Berkshire Hathaway vision suggests existing HHH holders aren’t keen to have their company taken for less than it’s worth,” wrote the analysts.
Howard Hughes’ share price jumped 9.5% in one day in January on Pershing Square’s proposal but has since pared some gains. The stock is up 4.8% year to date.
What the pros are saying:
Pershing Square’s latest offer for Howard Hughes to become the next Berkshire Hathaway “doesn’t do anything” for shareholders of the real-estate company, wrote the Piper Sandler analysts.
They said Howard Hughes’ independent board is unlikely to approve the revised offer, especially since the company doesn’t need the proposed $900 million capital injection.
The analysts say a $100 per share all-cash offer would likely be met with a favorable reception.
John Kim, a US real estate analyst at BMO Capital Markets, wrote that the revised offer “leaves more questions than answers” as it’s light on investment strategy.
“It remains unclear how new HHH will trade, as a more diversified vehicle, with access to valuable resources,” Kim wrote on Wednesday.
Howard Hughes shareholders still “have time on their side,” wrote the Piper Sandler analysts.
“This latest proposal reaffirms our view PS will continue exploring various avenues until it can ultimately win over the company,” they wrote, referring to Pershing Square.