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Ackman On CNBC: No alternative to Fannie and Freddie

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Bill Ackman, Pershing Square Capital Management, weighs in on the Valeant Pharmaceuticals Intl Inc (NYSE:VRX) and Allergan, Inc. (NYSE:AGN) controversy and long-term shareholder activism.

Also see: Bill Ackman Presentation At IRA Sohn 2014 Investment Conference

Ackman: Allergan, Valeant merger economically right thing to do


mario bobelli, very well-known investor was on squawk box and said the following. what ackman did is a tactic that needs more exposure so that it doesn’t happen again. it’s not fair. people say it was legal front-running for illegal insider trading. who is being helped and who, if anyone, is being harmed? everyone we make as a shareholder activist we have a plan so canadian pacific, we had hunter harrison in our pocket, agreed to come in and be the next ceo of our company. bought 14% of the company from people we don’t know we had harrison and disclosed our stake in the 13d and announced he was our candidate and the stock went 60 to $173 a share, didn’t go overnight but it got there over time and the person who sold to us between 46 and 60, yes, perhaps they would have wanted to though we had hunter harrison in our pocket but if an activist shareholder can’t build a stake in advance of advancing their plan there won’t be any shareholder activism. allergen in particular, let’s look at the shareholder. only bought 9.7% of the stock so93.7% of the shareholders got100% of the valuation for usworking with valiant to put in aproposal for the company.the stock was 116.63, today it’s168.i have to believe theshareholders are very happy andgot a lot of calls fromshareholders who are very happy. i’m sure the shareholders arehappy and anybody who has beenin the stock is happy. the stock we bought between0% and 9% of the company, wepushed the market price up overthat period of time so a bunchof shorter term investors got abetter price than they would hadhad we not been involved.valiant had tried to acquire thecompany over the previous 18months.by partnering with us weincreased the chance of a mergerhappening that otherwisewouldn’t happen.unfortunately, a lot of examplesof mergers in corporate americathat don’t happen because ofsocial issues and this is a casewhere economically this is theright thing to do, a much bettercompany, a much stronger companythat will, you know, be morecompetitive globally as a resultof this merger transaction andwe catalyze that to happen.we did that well within theconfines of the rules.the rules say, look, in somesense almost every investment wemake we are trading on our ownmaterial nonpublic informationwhich is our strategy for whatwe intend to do, and that’s whystock prices tend to rise theday after we take our stake. sure. we had to tell the market inadvance what we were going todo, the stock price would moveup and we’d never get anopportunity to get paid for ourown idea. i would just suggest what wehere and what the critics wouldsay is that, yes, but what islegal and what’s okay by therules doesn’t necessarily meanit’s right, and the rules somepeople are lobbying to changedirectly because of thistransaction. my question is who is harmed,right?every shareholder in allergengot a higher price, 93% got amuch higher price and thebenefit of a transaction thatnever would have happened.i don’t know that anyone wouldhave been harmed. maybe it’s just that you gotit too good. if everyone wants us to dopoorly in order for everyoneelse to do good is not a goodenvironment.i think long-term shareholderactivists is a very goodstrategy.it helps the big institutionswho are required to be passive.we’re not successful unless themajority of other hair holdersagree with what we have in mindand the reason for valuecreation in allergen is with ourpartnership with valiant we wereable to catalyze a transactionthat otherwise wouldn’t happen. do you think the law will be

Ackman: No alternative to Fannie and Freddie

CNBC’s Scott Wapner speaks to Bill Ackman, Pershing Square Capital Management, about the “winding down” of the old version of Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) and discusses the importance of reform to their programs.


fannie and freddie, the plan you laid out. positions in both of these names and you have had for some time. what you said on this stage is that you think we should reform fannie and freddie rather than wind them down. why do you think that’s the plan? if you want to preserve the 30-year fixed rate table, we don’t believe there’s an alternative to fannie and freddie. private market solutions that have been talked about are not feasible. it would require raising upwards, you know, of $500 billion of new capital for a bunch of start-up enterprises. we don’t think that’s feasible. issues with fannie and freddie. we think they lost their way beginning, in the early ’90s. started the fixed income arbitrage business, so-called investment polls of which required a lot of liquidity risk and really abused their government — implied government backing, and what we want to do is restore them to the way they were which was a business of simply guaranteeing interest and principal payments on mortgage-backed securities, and that business is a low risk bisque as long as they stay away from subprime and alt prime and if they go back to the core business and safe business of guaranteeing mortgages for middle class american and get out of fixed income arbitrage business and capital requirements are raised, we think about five fold, you’ll have an entity that will not require any government-backed stock and we can continue to have the lowest cost mortgage market in the world. they are making money hand over fist. those of you, hedge fund managers who have gotten into these stocks a while back have made a lot of money off of these trades. been some of the best trades for you as well as others. the only problem is the government has an entirely different plans, whether it’s senators crepo or johnson or corker. what makes it think they are even going to listen to your idea? it’s a trial blown and at the end of the day the government has to do what makes sense and what’s practical. two alternatives. can you have an express italy government guaranteed mortgage market which would be at an enormous amount of cost, which would require 5 trillion of additional debt, added to our national debt or you can have a true private sector solution which would be a recapitalized fannie and freddie and sharing our thesis and the facts and some analysis behind it that the power of just the facts will drive people to make the right decision. you head to washington figuretively and literally and start speaking with senators with what your plan is and why it would be a viable alternative to theirs. really 110 slides. we lay out our thoughts. we put some real faction on the ground. one of the things that’s not well understood that this business is a natural owe gonely. fannie and freddie have enormous scale which is why they can charge low guarantee fees and run a safe business. in order for private sector solutions to start, you need to earn an adequate return on capital and these ent miss tis won’t have scale when they launch. it will take them a century to get up to the capital or get up to the size of a fannie or freddie. no economies of scale or don’t have the track record or system. really not a practical solution. we do think there’s a lot to be said. in some ways we are winding down fannie and freddie. we’re wining down the old version of fannie and freddie, the fannie and freddie that got in trouble and creating a new one though in this case we think the brand names are very valuable. wouldn’t want to go away from the fannie and freddie brand names because that makes their mortgage-backed securities popular in china and around the world, paper that people think


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