Billionaire Bill Ackman Divulges Major Q1 Equity Moves

Billionaire William A. Ackman, the founder of hedge fund Pershing Square Capital Management LP, has experienced an uncharacteristic rough patch over the past several months, which the media has eaten up. His fund has suffered greatly from its huge bet on widely-scrutinized pharmaceutical company Valeant Pharmaceuticals Intl Inc. (NYSE:VRX), which has come under intense political and regulatory scrutiny, as well as fierce attacks from short sellers. Pershing Square manages a rather concentrated equity portfolio, which makes Mr. Ackman and his fund vulnerable to sharp price declines in one or more of his top stock picks. In a quarterly letter to investors released earlier this month, Mr. Ackman revealed that Pershing Square was down by 18% net-of-fees through the end of April after a strong 10.2% gain recorded in April. While many retail investors will likely be wary of Mr. Ackman’s stock picks at the moment, one can still benefit from having a look at his equity portfolio and top moves, given his exceptional long-term performance prior to the Valeant bet. In this article, we’ll take a look at five portfolio moves made by Mr. Ackman during the first quarter.

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Ackman Boosts Stake in Restaurant Brands International Inc. (NYSE:QSR)

Pershing Square increased its exposure to Restaurant Brands International Inc. (NYSE:QSR) by 1.15 million shares during the first quarter of 2016, to 39.15 million shares. The upped stake was worth $1.52 billion on March 31 and made up 17.2% of the fund’s concentrated equity portfolio. The owner of the Tim Hortons and Burger King quick service restaurants has seen its market value gain 8% since the beginning of 2016. Although the company’s reported sales for the first quarter of 2016 were down by 1.8% year-over-year, both Tim Hortons and Burger King saw comparable-store sales grow during the quarter; the former by 5.6% and the latter by 4.6%. The comparable-store sales growth was mainly driven by the introduction of new products, including Grilled Dogs at Burger King and croissant breakfast sandwiches at Tim Hortons. Warren Buffett’s Berkshire Hathaway owns 8.44 million shares of Restaurant Brands International Inc. (NYSE:QSR) as of March 31.

Mr. Ackman Cuts Stake in Air Products & Chemicals Inc. (NYSE:APD) by 63%

Bill Ackman’s hedge fund trimmed its stake in Air Products & Chemicals Inc. (NYSE:APD) by 12.95 million shares during the first three months of 2016, ending the March quarter with 7.60 million shares. The reshuffled position was worth $1.09 billion on March 31 and accounted for 12.4% of Pershing Square’s portfolio. In September 2015, the U.S industrial gas producer announced its intentions to spin-off its Materials Technologies business into an independent publicly-traded company, called Versum Materials LLC. Meanwhile, Air Products & Chemicals recently agreed to sell the performance-materials division of the Materials Technologies business to German specialty chemicals and materials company, Evonik Industries AG, for $3.8 billion. Mr. Ackman and his team “view the sale favorably” because it eliminates “market risk from the financing required for a spinoff transaction”. Shares of Air Products & Chemicals are up by 8% year-to-date. Andreas Halvorsen’s Viking Global has 6.91 million shares of Air Products & Chemicals Inc. (NYSE:APD) in its equity portfolio as of the end of March.

We’ll study three more moves executed by Pershing Square during the first quarter on the next page.

Pershing Square Reduces Exposure to Mondelez International Inc. (NASDAQ:MDLZ)

The billionaire activist investor also cut his firm’s stake in Mondelez International Inc. (NASDAQ:MDLZ) during the first quarter, by 20.42 million shares. The remaining stake of 22.94 million shares was valued at $920.44 million and constituted 10.4% of the fund’s equity portfolio at the end of March. In the aforementioned quarterly letter to investors, Bill Ackman said that his firm reduced its stake in the maker of Oreo biscuits for “portfolio management reasons”, as the stake had become an outsized position, partly due to its outperformance relative to some of the fund’s other stock picks. Nonetheless, Mr. Ackman and his team believe that there is significant opportunity for productivity improvement and margin expansion at Mondelez. Earlier this year, Mondelez’s management announced its plans to reach an operating margin of 17%-to-18% in 2018, and Pershing Square says the company’s business “would be worth significantly more than its current public market valuation” if Mondelez were to achieve that target. Nelson Peltz’s Trian Partners reported owning 48.03 million shares of Mondelez International Inc. (NASDAQ:MDLZ) in its latest 13F filing.

Bill Ackman Continues to Stand Behind Embattled Valeant Pharmaceuticals Intl Inc. (NYSE:VRX)

Let’s have a look at Bill Ackman’s once-largest equity position, which has weighed significantly on Pershing Square’s performance in the past several months. Mr. Ackman’s fund increased its stake in Valeant Pharmaceuticals Intl Inc. (NYSE:VRX) by 5.00 million shares during the March quarter, to 21.59 million shares worth $567.85 million at the quarter’s end. The shares of the Canadian-based pharmaceutical company started to stumble last September due to criticism over exploitative price gouging and mounting questions about the practices of specialty pharmacy Philidor. Former Chairman and CEO of Perrigo Company plc (NYSE:PRGO), Joseph C. Papa, who took over the reins of leadership at Valeant in early May, is “an ideal choice for Valeant” according to the aforementioned quarterly letter to investors (read more details). Bill Ackman believes “Valeant has some of the best and most durable assets in the pharmaceutical industry, which do not require aggressive pricing in order to generate growth and substantial free cash flow”. John Paulson’s Paulson & Co. owns 13.28 million shares of Valeant Pharmaceuticals Intl Inc. (NYSE:VRX) as of March 31.

Mr. Ackman Acquires New Stake in Nomad Foods Limited (NYSE:NOMD)

Pershing Square added a stake of 33.33 million shares of Nomad Foods Limited (NYSE:NOMD) to its portfolio during the first quarter, which was valued at $300.33 million on March 31. The new position accounted for 3.4% of the hedge fund’s concentrated equity portfolio. Nomad Foods Limited is a manufacturer and distributor of branded frozen foods in Western Europe and has seen its shares drop by 27% since the start of 2016. The company completed the acquisition of European frozen food company Iglo Foods Holdings Limited in June 2015, as well as purchased the Findus Group, a frozen food company operating in continental Europe, in November 2015. The two acquisitions made Nomad the leading branded frozen foods business in Europe, which was described by Mr. Ackman as being “stable, high-margin, and cash-flow generative with low capex requirements and modest cash taxes”. According to Mr. Ackman, Nomad will keep working to consolidate the global packaged food sector over the long-term. Keith Meister’s Corvex Management LP owns 15.26 million shares of Nomad Foods Limited (NYSE:NOMD) as of the end of the first quarter.

Disclosure: None