P&G has been one of the great growth companies of all times but quite frankly it has stumbled over the past couple of years under the current CEO’s leadership, said William Ackman, Pershing Square Capital Management founder & CEO, discussing the problems at Procter & Gamble.
you solve it. welcome back to squawk this morning. our next guest saw over 1,000% in his investment in general growth partners and pushing to add new value to the price. joining us is famed active list/investor bill ackman, founder and ceo of pershing square capital management, a lot to talk about what’s going on at p&g and jcp as well. on general growth you are trying to push a deal with simon properties. let me explain, general growth has been a good investment and we actually started off with brookfield as a partner and they’ve been a good partner to date. the problem is that they’re pursuing their own agenda to get control of the country. let’s set the table for a second. please. there’s three companies here. there’s general properties, general growth. mall company. there’s simon. yep. and then there’s — brookfield, big shareholder. you’re worried about brookfield taking over the company. correct. that’s one of your worries. without paying a premium. and at the same time you’re trying to push a deal with simon and unclear whether simon wants to buy the company. no, it is clear. it is clear? yes. even though recently they came out and said they don’t want to buy the company. sure that’s what they always say. the oldest story in the book, the question of price. it’s always a question of price. so let me lay it out for you. board has a duty to its shareholders to protect the assets of the corporation, one of the most valuable assets of the corporation is control. sam would tell you how valuable control is. it’s worth $6 billion to $9 billion, the kind of premi shareholders could receive in a sale transaction, a merger with simon. brookfield wants that control premium for themselves and they’re self-interested which is perfectly legal, they own 29% of the company coming out of the bankruptcy, they now have 42% if you include warrants. 38% of the shares they can vote so getting close to a position where they can stop the company from being sold so we, what happened here is in october of last year we sat down with simon and we proposed a transaction where simon would buy the company in a merger to general growth shareholders would continue to own about a 30% interest in simon going forward, david liked the deal and he said look, but before i spend any more time, tell me whether your partners at brookfield or blackstone are interested. blackstone said sounds great to us. we began a process going on for 10 or 11 months where brookfield has been working on a deal to buy the company sore so i thought. what’s really been going on working up setting up an entity called brookfield property partners and the entity will end up with their stake in ge growth and they want to keep general growth forever. if they keep it forever shareholder also miss out on their control premiums so to lay it out we asked the board in light of the situation, brookfield will get control of this company, creeping every quarter buying a little more shares we’re going to be in position where the control premium will be taken away from us. we want to you protect us, form an independent committee of directors. i’m going to sam. what should happen? first of all i think you got to go back to history and history of canadian companies is all about not paying for control, not buying 100% of another company and maintaining control by loning blocks, parent compa controls company b and when you stretch it out you are creating massive asset control with very little capital. now unfortunately that’s exactly the business they’re in. you want them to change leopard clothes or something, the idea you talk to them and you thought they were going to buy from you, i mean that’s tooth fairy stuff. they weren’t going to buy from you. sure. the real question i’d ask you, bill, is don’t they have control today in. they don’t. the reason why they don’t have control today when we did the original deal, we did a few things, we’re not permitted to vote their shares over 10% of the stock they own for their own, for the other directors, they have to vote their share in proportion. we could fairly get control of their board. the second thing is they’re getting closer to control with 38% but in a premium transaction structured as a tendered and exchange offer we’re still fine and even if that, we had difficulty getting the votes because mechanically people didn’t return their proxies there’s precedent for a board granting an option to acquire to buy 20% of the stock of a company as a way to facilitate a transaction. jpmorgan buying bear stearns had trouble getting the deal done. they said we’re going to sell you x percent of the company. there are things that can be done. we need a board to be vigilant. it will be easier if we have a willing buyer, we have and by the way — what’s simon’s price? i think they’ll do a deal that’s economically accretive to them. there’s got to be a number. we showed in a deal yesterday which would be a 30% premium to the unaffected price, get stock in simon, be $24 to the general growth shareholder versus $151 simon stock, that’s the exchange ratio. because the deal is so accretive to simon, meaningful revenue synergies and cost synergies, we believe the stock would trade up significantly and the $24 would go to $29. is david simon going to do this? you know him. i think david is very good, i think there are issues here, i mean i don’t understand whether there is an anti-trust issue although you could sell off stock and solve that problem but david’s been embarrassed a couple of times already where he’s made offers that have not been accepted and i suspect he’s not about to go play a third time without a specific scenario on the other side saying if you do this, we will sell the company, i don’t see him sticking his neck out again and getting him embarrassed. the minute you stick your neck out, you’re saying come get me, and everybody in the world is for sure going to come get the winner. i think david will respond to an opportunity if one gets created. i’m a little more pessimistic, whether you vote 38% or you own 38%, i’m not sure it makes that big a difference. and as i found out, frankly, in a lot of other deals we’ve been in, there seems to be a cadre of investors who always want to preserve the status quo and i’ve been in situations exactly like you and they say this is so logical. obviously, and somebody comes up and says i’ve been there for 0 years or been there for five years, this is a great investment and i don’t want anybody else to run the company. if 12% of the people decide that’s what they want to do, i think brookfield has control and i actually think brookfield has semieffective or semiuneffective but semiform of control today. if they don’t get pushed you have to get the word out. i agree a lot with what sam says. david was embarrassed during the bankruptcy. his mistake each time we told him what he needed to do and he wasn’t willing what he needed to do. this time i’m david simon’s best friend. i am going to deliver — this week. — i’m david simon’s best friend, i’m going to deliver a transaction very attractive to simon. the way the board analyzed the transaction, they looked at as as if we’re selling the company. in a transaction they own something like 30% of the combined company. we’re not cashing people out. we’re not looking to are a short term pop. we’re merging and more levered company with less levered company with a strong management team. if you are going after p&g the whole company you might want to — team up with — you got 1% or something? i mean — we’re not going after p&g. while he’s here, he should ask. you’re trying to get rid of the ceo. p&g is one of the great companies of all-time, been in growth for 75 years it’s stumbled over the last several years under the current ceo’s leadership, and we’ve kind of laid out what our cs are and i think our concerns are not our concerns. they’re the concerns of all the shareholders. do you think your concerns are being heeded? absolutely. we were received at a very seriously by the board, we had a great meeting with the lead director and ken chernault and bob mcdonald and laid out our concerns. bob is focused on succeeding and keeping his job, it’s a good dynamic. the board wants to give him a little bit more time and see if he can make some progress and if not, this is one of the best boards in america. what is the real problem? it’s something built up over the years. part of the problem is there’s not a culture of efficiency, let’s put it that way at procter & gamble. it is a fat and bloated company. competitors are nimble, have better cost structures, allows them to reinvest in growth the company has not been able to. you look at unilever, making the company much more efficient. the ’90s with dirk jagger, mick jagger, whatever, and lastly procter & gamble, you were talking about the last couple of years, p&g was turned around, sounds like we’re back to the future. there was a problem and the board stepped in and they found someone internally, someone who has been one of the great ceos of procter & gamble. what is your next move if nothing happens at p&g? what cards do you have to play? this is the most public statement i’ve made about p&g. all we’ve done is bought some stock, sat down with the board. this is a high quality board, a group of very talented ceos, operators, not on this board to receive a director’s fee. they’re on the board to do the right thing and i’m confident they’ll do the right thing. you teased in this investor conference you had a secret short position. yes. would you like to share your secret with us? not yet. can you give us a hint in. i’m sure it’s sam’s company. no. which one? what industry? i can’t say. we have to go to commercial. i’m happy to talk about it when i’m ready. it’s a good firm, as soon as the company goes out of business the country will be better off. i don’t know what to make of