We continue our Sohn Brazil Conference coverage – Below is our full 42 pages of notes in PDF format. As a reminder, the following speakers pitched at the event on December 6th 2017 (besides Ackman all the speeches were in Portugese but our notes are in English :) ) Bill Ackman, Pershing Square; Mauricio Bittencourt of M Square Brasil Daniel Golberg of Farallon Latin America; André Jakurski, founder of JGP; Hernan Kazah Co-Founder of Kaszek Ventures; Beeneet Kothari from Tekne Capital; Steven J. Quamme Senior Managing Director, Cartic; and most famous of all Luis Stuhlberger, Verde Asset Management.
- Looks for great, easy-to-understand, FCF generative businesses. Seeks for large stakes in invested companies;
- Quickly described investments in GGP and HHC spin-off, believes HHC has a long leeway of development opportunities with mid-teens ROIC. Unconventional investment vehicle (not a REIT) and has low coverage.
- Chipotle: high incremental ROI, one of the most productive restaurants in the world with U$2M per store vs BK U$1,3M, with no breakfast, late hours, drive-thru, desserts, etc of 3G guys. Hiring the CEO can be transformational to the company;
- Valeant was different than any other investment cases. Didn't reduce the position in spite of stock price. And now it has a deteriorating business and increased leverage. Back then, VRX CEO approached Ackman to buy Allergan (cost cutting + poor R&D opportunities), but VRX walked away from the deal after Allergan tried to elevate the selling price, which in turn made Ackman believe VRX CEO was a good capital allocator and steward. Right after, when VRX announced the acquisition of Salix, Ackman decided to buy VRX without further due diligence, given the past experience with VRX and Allergan negotiation. Then, everything happened.
- Discount on Pershing Square Holdings is an urgent topic. Tripled the pace of buybacks, listed on other exchanges. 22% discount to NAV. Pershing associates put U$85M on the IPO.
- APD: spending a lot of time with management. Company has potential
Bill Ackman So, I invest in what I describe as simple, predictable, free cash flow, general businesses, and we look for businesses like that, that have lost their way. You know, great businesses, easy to understand, that over time, because of consistency, because of that strategic decision of acquisition, has led to underperformance. I grow it to its potential. And we stick to buying a large stake from that company, and we then use techniques that can include everything from presenting a conference to write test, and that's kind of the full spectrum of what we do. In terms of long term, I guess our longest held investment was the Howard Hughes Corporation. It came along, we bought 25% stake, company with overall growth, a small shopping mall business, starting a venture crisis, stock down 99.99%. And we basically strike back zero, because the world believed the company was going bankrupt and the recession was showing that every company was bankrupt. Our assessment was that the company had a....
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