He announced on Monday that Bill Ackman created a new acquisition machine to fulfill his long-term desire to replicate the success of Warren Buffett's Berkshire Hathaway.
Ackman is exerting effective control over Howard Hughes, a listed real estate development company he already owns partially, and has made another $900 million investment in the Texas group. Under the agreement, it will change its strategy to become a diversified conglomerate that purchases control of public and private companies under the direction of Ackman and his investment team.
Ackman has been struggling for months but faces opposition from shareholders of Howard Hughes, a shareholder in Howard Hughes, a proposal for an abnormal management fee, which could be an annual objection to his asset management company, Pershing Square, worth tens of millions of dollars a year. Ackman agreed to soften the fee arrangements, paving the way for Monday’s deal.
Howard Hughes will pay $15 million to the investment team led by Ackman and his chief investment officer Ryan Israel to seek acquisitions each year. Howard Hughes has a market cap that exceeds inflation and it will also owe Pershing Square a 1.5% fee.
The special committee formed by Howard Hughes' board of directors resolved complaints about the original terms. Some large Howard Hughes shareholders have taken a positive view of the new arrangement, which has considered trying to stop Ackman’s previous efforts in January.
In the first effort, Ackman proposed that Howard Hughes paid Pershing Square a 1.5% administration fee without any obstacles to its cap growth in all markets. However, the new proposal links the fees to current market cap and Howard Hughes' share, meaning Ackerman won't fund the acquisition just because only the issuance of new Howard Hughes' shares.
"The change in management fees was a big change proposed earlier," a major shareholder told the Financial Times. "It was not a perfect deal, but the Special Committee listened to some feedback."
However, other shareholders criticized Ackman for its low fees barriers rather than being associated with the S&P 500 or a stricter benchmark. The deal does not require shareholder votes and ends on Monday.
Ackman founded Howard Hughes in 2012, a way to exit one of his greatest deals of all time, a big bet on bankrupt shopping center developers’ general growth properties during the 2008 financial crisis. Rather than selling its stock, Ackman has ownership of a common growth non-core property, including large residential developments in Houston, Las Vegas, Maryland and Hawaii.
Ackman has long believed that public investors have not received highly rated properties so far, using their cash flow and tax advantages to fund large companies’ takeovers.
Howard Hughes’ value “is largely unpublished” and now it can be a “superbly platform for building faster, high-priced holding companies”, Ackerman said in a press release.