Pershing Square Capital Quarterly Conference Call


Pershing Square Capital Management conference call audio for the first quarter ended March 31, 2016. Bill Ackman is down 25 percent in the first quarter of 2016 and investors are not happy. We expect that the biggest question will be about Pershing Square’s investment in Valeant Pharmaceuticals, which went from darling to near bankruptcy in just a few months. Unfortunately, now that Bill Ackman is now a board member of the company we assume he will not be able to discuss the matter much (if at all). There will be other questions about his short in Herbalife Ltd. (HLF) (which has gone up quite a bit) and Platform Specialty Products (a long) which has gone down quite a bit. And we expect that there will be questions about redemptions, concentration, style drift and many more fun topics, as well.

The conference call begins at 10AM EST – we have a live video embedded below and will be updating this post with notes on what Ackman says so please come to check back. Also, when the presentation is over after three or four hours, readers will be able to listen to the full audio at any time.

UPDATE: 10:06 – Ackman says the work by the committee on VRX yesterday was very important and gives him confidence. He decided to go active after watching events unfold over the past four or five months. Ackman says VRX has some of the best assets in the pharma business which can be sold. VRX now is at a low which is great for new CEO its in weeks not months in terms of new CEO. There are four new terrific directors. The company only needs to restore confidence and put up decent numbers and stock will rise again. Ackman thinks issue is with confidence and that is easier to restore than real issues, which VRX does not have. That is all Ackman will say on VRX.

 

Fannie and Freddie

  1. Earnings are good and healthy except in FI and arb but its getting better every Q  – reported results do not look good because of hedging. Finally,  this is getting attention in Congress. It is increasing calls to retain capital.
  2.  Broader press for Fannie to retain capital and many proposals to keep Fannie part of process – some analysts who had previously called for Fannie to be winded down now said it should be part of mortgage process.
  3. Legal case – Perry lawsuit coming up. Very strong panel of judges we should hear results a few months later.

HHC – read the letter from the CEO it is really good

Seaport probably worth value of entire company – it is second most trafficked location in NYC – it will be a big place when re-opened. Will generate income in 2017.

HHC not covered by bulge bracket firms – it should start getting more coverage which should help

Herbalife

We discussed most of what we wanted to mention in recent letter here is brief overcap.

The company announced resolution coming up – we think it will be worse – they previously said they expected to win – the process is nearing the end – we think its a pyramid scheme and should be shut down.

Company admitted “very large errors” over the last few months and started new metric but did not define or explain the percentage.

Q3 number was overstated by 43 times this shows how fake the numbers are. They will not disclose churn rate since 2005 when it was 90 percent. They are trying to deflect away from weakness.

Ackman says stock is up this year on 10k – we think extremely remote FTC won’t do anything. Even if company is fine valuation seems stretched from long position point of view, more downside than upside.

MDLZ

We sold shares but we own 5.5% stake – it is too big a stake but it is still a very high conviction idea

Nomad

Made some great acquisitions of high margins even if not high growth businesses. Business has had some weakness – MGMT has shifted to refocus on core offerings but could take a few quarters to show up. They plan to integrate new merger and would not do merger except with core related business

Platform

  1. Company has new CEO. He was CEO of a big life sciences company.

QSR

Very strong results – three areas to highlight

  1. Strong SSS especially at Burger King and Tim Hortons – shows 3G can make biz more efficient while keeping top line high
  2.  Increase in unit count
  3.  Decrease in cost

This led to very strong EBITDA growth

ZTS

Only large animal health company which is public. Their revenue is 50 percent derived from strong international business.

New acquisitions and new products in 2015. Has received FDA approval  for …. Chile approved important drug for Salmon farming and came earlier than expected.

USDA approved Avian flue vaccine in March

There is no medicaid or medicare reimbursement so there is no political risk – this is high quality, well managed, diversified business

They sell directly to farmers and Vets, no third parties and few generic competition.

 

Q&A

Ackman says media does not understand accounting story.

Valeant Walgreens big distribution – but it is not true company does not do R&D and raises drug prices

This has hurt reputation, but we will be judge what we do to protect the firm and the company and now that we are on the board we can take a role. The company really is doing a good job addressing concerns and delivering results and Mike Pearson is doing a great job. This is period of maximum pessimism, company made important announcement yesterday and  investors could have confidence in 10K.

We thought the stock at $90 was really attractive and we also assessed it at $30 and we think we can restore value very very quickly – this stock will be up a lot in coming quarters. This is worth the time and energy.

CP

Hunter CEO is focusing on the big transaction and Keith is really focused on running the company and doing a great job.

Canada facing oil crisis, but we think this business will do well long term. Drop in CAD has helped amid weakness in Canada, but it is much more than exports.

CP 100 year bond – it is basically equity

FNMA – Fairholme and Perry are main cases to watch – Fairholme from little we know of discovery it is favorable to shareholders

VRX – we have done soul searching for our mistakes but this is not the time to discuss it

We do not use algos for sizing we do upside vs downside analysis. FNMA will be small because it could be complete loss. On VRX we have had 80 percent decline – we believe we can recover lions share if not all of our position over time.

We had nominal redemptions, MDLZ sale had to do with size.

We think VRX reinforces need to invest in simple investments. VRX has simple investments but there is added complexity due to structure

We hedge tail risks we did it before financial crisis since then has been a cost although not a large one

We learn from great CEOs like Hunter Harrison and try to connect those CEOs with other companies we own.

We have some option leverage. Margin leverage could cause forced sales

We pitched Tim Hortons to 3G

Valeant biggest mistake was price paid to IV –  it was not enough had bad investor relations, PR etc and that really hurt the company. Underlying assets are doing fine., We cannot provide guidance because we are on board but company would be fine

We sold some China currency options we have 4.5B left we could make $600-$700M

GAAP bad metric for valuing businesses

Ackman says 15 more minutes of question answering

Ackman on VRX debt levels – many well capitalized buyers – they can sell some non core businesses – they have plenty of cash flow to cover debt expenses.

Tim Ramey said…. Ackman HLF can be subject of injunction of FTC like in Fortune High Tech could be frozen assets? – could be negotiated but all options on the table.

Conference call over!

 

Pershing Square Capital Quarterly Conference Call
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Pershing Square Capital Quarterly Conference Call

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