Bill Ackman, the notorious investor and CEO of Pershing Square, is a name that would certainly come up in a discussion about activist investing. Mr. Ackman has run several successful activist campaigns and made significant profits on bets like Canadian Pacific Railway Limited (USA) (NYSE:CP). However, last year has been particularly successful for Pershing Square as the fund grew to over $18 billion in assets, from $11.5 billion over the course of 2014. In a recent interview on Bloomberg Television, Mr. Ackman has discussed his investment strategy, as well as provided its opinion regarding oil prices decline and mentioned that he was considering investing in the UK retailer Tesco PLC (LON:TSCO), among other things.
One of the main causes of this growth is its investment in botox-maker Allergan, Inc. (NYSE:AGN), which Mr. Ackman tried to acquire jointly with Valeant Pharmaceuticals Intl Inc (NYSE:VRX). However, even though, after a pretty rough proxy fight, Allergan was sold to Actavis plc (NYSE:ACT) instead of Valeant, Mr. Ackman still made a ton of money on its 9.7% stake in the company, as the stock gained 50% during the April-November period as story involving the sale of Allergan was developing.
During his interview with Bloomberg TV’s Francine Lacqua and Guy Johnson Mr. Ackman stated that the main target of Pershing Square’s investment strategy are high quality companies that run a predictable business model and are capable of generating free cash flow. Moreover, Pershig Square also prefers to invest in companies that are not exposed to commodity prices and have unique assets and long-term contracts, among other factors.
“And we’re looking for a business like that that’s lost its way. Perhaps the costs are now out of line; they’ve not allocated capital effectively. They might have hidden assets that are misunderstood by the market. And we can buy a large stake and sit down with management and help make the business more successful,” Mr. Ackman said.
The investor has also mentioned the latest development in the history of his firm, as Pershing Square Holdings Ltd (AMS:PSH) went public on Amsterdam Stock Exchange in October. Since its IPO, the stock gained around 8%, but Mr. Ackman stated that it trades at around 10% discount to book value. Moreover, he said that the company has had an 11-year record of compounting its equity at 23%
The CEO of Pershing Square Holdings Ltd (AMS:PSH) also discussed his interest in some large UK companies and mentioned that Pershing Square “did look at Tesco.”
“But we’ve had our difficulties with retail and a lot of structural changes going on that make that a more difficult business. We look occasionally at companies in the U.K,” he added.
As a side note, we would like to remind that the stock of one of the largest UK retailers Tesco PLC (LON:TSCO) plunged by 44% over the course of 2014, after the company discovered that it has overstated its profit guidance for the first half of 2014 by around $400 million. A significant stake in the company at that time was held by Warren Buffett‘s Berkshire Hathaway (3.7%). The $1.7 billion investment costed Berkshire around $750 million as it exited the position, which also made Mr. Buffett to admit that it “was a huge mistake.”
Mr. Ackman said that he did not ask Warren Buffett for an advice, while he was looking at Tesco PLC (LON:TSCO), but he added that there is a lot of negative sentiment when “Warren Buffett is giving up.” On the other hand, Tesco still has a lof of assets, but Pershing Square has had “difficulties with retail” in the past, which probably caused the investor to renounced the idea of investing in Tesco, and said that he has no plans to invest in the UK.
Another investment that Mr. Ackman mentioned was 3G Capital, a company that played a major role in the recent Burger King’s acquisition of Tim Hortons, after which the Brazilian investment firm obtained a 51% stake in the newly formed Restaurant Brands International Inc (NYSE:QSR). Pershing Square, as a former shareholder of Burger King, owns an 18.8% stake (according to the latest filing). Mr. Ackman also mentioned that a small part of his personal funds are invested with 3G, while the majority are represented by his holding in Pershing Square.
“At this point, we’re a Burger King shareholder. Burger King I think is taking very meaningful market share away from McDonald’s. We have a lot of confidence in the Burger King management team. So I think it’d probably be unlikely for us to be competing with ourselves. And I think McDonald’s stock is not cheap. I think that can be a serious issue because there’s a very strong balance sheet, pays almost a 4 percent dividend yield. I think that supports the stock price. So I think it’s not as interesting because the dividend supports a value that I think is maybe not justified based on the current performance of the company,” Mr. Ackman also said.
During the interview, Mr. Ackman also provided his opinion regarding the energy sector. He considers that now it is not a good time to have a big exposure to this sector of the economy, but there will appear opportunities in the future. However, Pershing Square might not be the one that will pursue this opportunities since the fund usually invests in companies that are not impacted by energy prices going up and down.
Nevertheless, Pershing Square still has some exposure to oil prices, due to its stake in Canadian Pacific, which among other things is also a big transporter of oil. However, Mr. Ackman assured that the company will not face any issues with oil prices falling, since only a small portion of Canadian Pacific’s revenue comes from transportation of oil, in comparison with other commodities.
But getting back to Pershing Square Holdings Ltd (AMS:PSH), Mr. Ackman considers that his firm is traded cheaply due to some short-term technical factors. Moreover, while there are only a number of companies that managed to earn between 20% and 25% on equity, they traded at an average of 2.7-2.8 times book value, which is significantly above Pershing Square Holdings Ltd (AMS:PSH), which trades at 0.9 times book value.
In addition, Pershing Square will get significant amount of cash after the deal between Actavis and Allergan is completed, and within the next couple of months, the fund will have to decide what to do with this capital. Pershing Square will continue to pursue investment opportunities among large companies.
The full video of the interview is available below:
Disclosure: none
