Bill Ackman, Founder and CEO of Pershing Square, discussed taking Pershing Square Holdings public and U.K. companies he was considering with Bloomberg TV’s Francine Lacqua and Guy Johnson today. He said oil’s drop is a “huge boon” to the U.S. consumer and helps “the vast majority” of the economy.
Ackman revealed he considered investing in Tesco in the last six months: “We did look at Tesco, I’ll have to admit that. 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.
On purchasing companies in the UK and whether Ackman called Warren Buffet for advice on Tesco, he said “No, but when Warren Buffett is giving up, there’s got to be a lot of negative sentiment. But he’s probably giving up for a good reason. But a lot of assets, et cetera. But we look on a very rare occasion. We were a shareholder of Cadbury prior to the Kraft deal. But, other than that, we’ve done nothing here. And we’ve not been active in any way here.”
Bill Ackman Says Benefits of Oil Price Drop Outweigh Costs
Ackman: Looked at Tesco, Did Not Talk With Buffett
GUY JOHNSON: Now, 2014, a rough year for hedge funds with firms on average returning just 2 percent. Some of the passive funds did a little better than that, but that wasn’t the case for activist investor Bill Ackman.
FRANCINE LACQUA: It certainly wasn’t. He went from managing $11.5 billion to more than $18 billion last year, and that put his hedge fund at the top of Bloomberg Market’s annual rankings.
Now we’re joined by Bill Ackman, founder and CEO of Pershing Square Capital Management. Bill, great to have you on the program. Thank you so much for joining us. Give us a sense — you have $18 billion now — what is the next thing on your list? What are you looking at?
BILL ACKMAN: We’re looking for what we normally look for, which is we’re looking for very high quality companies, usually very large businesses, dominant, simple, predictable, free cash flow-generative companies that have, I guess as Buffett would describe them, a moat around them. Brand, unique assets, long-term contracts, things that protect the business from new entrants. Businesses that are not exposed to commodity prices, fortunately.
So that’s what we’re looking for. 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.
JOHNSON: So the question everybody is asking themselves is what is Bill Ackman doing on this side of the pond wearing a suit and a tie and not on vacation?
BILL ACKMAN: That’s a good question. So I’m here because we took a company public here called Pershing Square Holdings, listed on Euronext. I think no one knows it actually exists even though it has almost $7 billion of capital. I think it was the largest IPO in Europe last year, interestingly enough, about a $2.7 billion IPO.
But it’s — I would call it the best-kept secret. If I came to you and I said we have an investment holding company with an 11-year record of compounding at 23 percent — compounding its equity at 23 percent for 11 years and you can buy at a discount to book value, people would say, well, there must be something wrong. And, in fact, Pershing Square Holdings today trades at about a 10 percent discount to book value. And pro forma for the lower incentive fees of Pershing Square Holdings, it’s part of a group of funds that have earned 23 percent for a long time.
LACQUA: Bill, I have a great piece of PR advice.
BILL ACKMAN: Please.
LACQUA: Buy a big company in the U.K., make a bang, go after it, and people will know instantly about it. Is that something you are thinking about?
BILL ACKMAN: We did look at Tesco, I’ll have to admit that. 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. We’ve —
LACQUA: When did you look at Tesco? In the last six months?
BILL ACKMAN: Yes.
JOHNSON: Did you ring up Warren Buffett and ask his advice when you were looking at it?
BILL ACKMAN: No, but when Warren Buffett is giving up, there’s got to be a lot of negative sentiment. But he’s probably giving up for a good reason. But a lot of assets, et cetera. But we look on a very rare occasion. We were a shareholder of Cadbury prior to the Kraft deal. But, other than that, we’ve done nothing here. And we’ve not been active in any way here.
JOHNSON: You sat down in the break and you said there’s still plenty of opportunity at home. Do opportunities exist over here? It’s just that there are enough over there and they keep you occupied?
BILL ACKMAN: This is a time-consuming strategy. You find yourself in a situation, a proxy contest. Again, very vast majority of what we do, we end up in a consensual arrangement with a board or a management team. But if it goes otherwise, it gets complicated and you have to get on a plane and spend your life away from home. So I think that causes us to focus a lot more on what’s close to home. Don’t need a passport.
LACQUA: So that you know the directors better? You get a feel for the business better? Because it seems like opportunities in the U.K. may be more rife than actually in the U.S.
BILL ACKMAN: Actually, I’m not sure that’s true. We have the benefit of I would say a very favorable governance environment where directors are more in tune to what their shareholders have to say than they were 10 or 15 or 20 years ago. You have much larger companies, generally. Very big, liquid stocks, so we can buy big stakes in companies. And then, of course, it’s a shorter plane ride to go visit headquarters. And that I think is probably the biggest driver for us. So we really focus on the S&P 500, Canada to some extent. And that’s really where we spend our time in the last 11 years.
JOHNSON: Do you think that there are opportunities for activism over here? When I talked to money managers, and I remember sitting downstairs not that long ago listening to a bunch of managers saying activism doesn’t work over here. These guys want to come over from the States and they want to influence management by the company — don’t take stakes and think that they can push us around. Is there a different