“The Reporting Persons are and intend to continue evaluating the possibility of various potential alternatives with respect to their investment in the Issuer, including a possible transaction in which the Reporting Persons and/or one or more of their affiliates (either alone or together with one or more potential co-investors) may acquire all or substantially all of the shares of Common Stock in the Issuer not owned by them and their affiliates and in connection therewith take the Issuer private (a “take-private”). Jefferies LLC began advising the Reporting Persons on August 6, 2024 in connection with this evaluation. The Reporting Persons may discuss their evaluation and the potential alternatives, including a potential take-private, with one or more prospective co-investors, which discussions are expected to be conducted on a confidential basis. In the event the Reporting Persons explore such a potential transaction, there can be no guarantee that an agreement regarding such potential transaction can be reached and/or consummated.
I find the timing rather odd so soon after the spinoff of Seaport Entertainment (SEG), the spinoff was designed to remove some of the complexity and cash burning assets from Howard Hughes, return it to a pure play master planned community developer story. In theory, HHH then might re-rate closer to its NAV of $100+. If the plan all along was really to dump Seaport Entertainment, come in to scoop up HHH on the cheap, why is Pershing Square backstopping the SEG rights offering? Just strange to spend $30 million in cash expense to spin SEG, backstop SEG, and then take HHH private so soon after. Should have just bought it before the spin and save the legal bills.
Possibly this is the result of Ackman pulling the IPO of his closed end fund after selling a stake in his GP raising expectations for growth, he could need an investment vehicle or non-securities assets to redomicile Pershing Square Holdings Ltd to the United States and avoid being under the 1940 Act.
As for the potential price or structure, I'm prepared to be disappointed, NAV is likely well over $100 per share, but is unlikely to be realized in a transaction. As a reminder for those newer to the company, back in 2019, Howard Hughes did run a full strategic process that failed to produce a buyer willing to pay the asking price. Have things changed much since? Brookfield (who notoriously don't pay fair value) was involved in the GGP restructuring and was an HHC shareholder for a while, but otherwise, Pershing Square might be the only buyer so I'm not getting my hopes up for a large premium. The language in the 13D suggests a cash offer to go-private, that's preferable in mind than some convoluted structure where Howard Hughes shareholders trade discounted HHH shares for discounted PSHZF in some share-for-share merger.
Disclosure: I own shares of HHH and SEG
why not just call out ackman on his intrinsic cheapness and inability to grift a new fleet of investors? matt levine has done a good job covering.
ReplyDeletethis time at least, it had nothing to do with brookfield, who by the way, did not do so great with the ggp deal.
I only mention Brookfield because they were rumored to be a bidder in 2019 and know the assets well based on being part of the GGP restructuring.
Deleteok. given the space you play in, you would the last person i expect to be naive to ackman and his ilk !
DeleteHm, thought I was pretty skeptical of his intentions in the post, but maybe not enough. Market seems to agree, although I was looking at just out of the money call options and they seem pretty cheap. Could be a way to play him actually following through this time.
DeleteIn my book your skepticism came across well. Assuming there is a cash deal, how about recycling the proceeds into PSH to continue profiting from HHH value appreciation?
DeleteI was pretty confident this was coming but didn't know if the spin off would be the catalyst though. Looks that way now, although I agree with you that the rights issue backstop is strange. I would be interested to know what price you think this gets done at? It's possible Ackman was pushing for the spin off but the board made him backstop SEG to get it done. Maybe this is a bit fanciful.
ReplyDeleteI hadn't thought about that angle, but seems plausible.
DeleteI had heard a hypothesis that Ackman was backstopping the rights offering so he could plausibly argue that he did everything he could to help the company if eventually goes bankrupt. And basically, it would allow him to make a lot of money on HHH RemainCo. Not sure I agree with this hypothesis. I think he probably thought a $25 per share valuation for SEG through the rights offering was a cheap enough price with asymetric upside potential.
DeleteAny deal will need HHH to be the surviving entity in order to preserve their tax assets, so a straight-forward cash offer from PSH seems unlikely. Knowing Ackman there will be a good amount of complex financial engineering.
ReplyDeleteI agree with Paddy that Ackman probably told the board of his plans and the board responded with “well you need to backstop a rights offering then”. And he is hoping SEG shareholders will exercise their rights and he won’t need to backstop it. Which is a pretty good assumption.
Which tax assets are you referring to? They might have $170MM in NOLs, $50MM as of 12/31 and $120MM from the Seaport spin, I might be double counting some there, but at a 21% tax rate, not sure if that's meaningful enough to change the structure? But you're probably right, Ackman will come up with something complicated.
DeleteI'm still a bit hung up on DVMT, but I could see something similar happening here where the NAV is sort of ignored and a transaction to bring another entity public via DVMT/HHH takes priority and is jammed through despite screwing minority shareholders.
They have said in previous calls that they weren't converting to a REIT because they had a lot of tax assets they could use to shelter income, so there was no need to convert, however, it looks like they've burned through a lot of DTAs since they last made that comment. Although I'm still seeing $279MM in gross deferred tax assets as of 12/31 (at 21% that's $1.3B in NOLs), or $5.50/share undiscounted. So they would presumably lose that if ownership changed...they have DTLs too but I doubt those go away in an ownership change, not sure.
ReplyDeleteIt may not be enough to matter anymore, we'll see.
ReplyDeleteInteresting move by Pershing Square with Howard Hughes. The timing of the potential take-private offer right after the Seaport Entertainment spinoff raises questions—why spend $30 million on the spin-off and backstop it if they planned to acquire HHH cheaply?
The involvement of Jefferies suggests serious intentions, but with past attempts to sell HHH failing, I’m cautious about the offer price. It could be linked to Ackman’s need for a new investment vehicle or redomiciling Pershing Square Holdings.
Hoping for a straightforward cash offer rather than a complex share swap. Let’s see how this unfolds.
iqratechnology
Anyone have a view where SEG settles out once all is said and done.
ReplyDelete$25 is roughly half of book value, that's book that was recently impaired, they spent well over $1B on the Seaport. At the time of underwriting, they were targeting a 4-6% yield on that $1+B. Obviously they haven't come close, but who knows with new management. I do like the guy they brought in to run SEG, we'll see what happens. I plan on participating in the rights offering, but even after the rights, probably will be my smallest position.
DeleteThe impression I get of Ackman, having followed him over the years is that he is manipulative and dishonest. HHH is risky for the same reason MANU is, people in control do not have common shareholder interest at heart. That is probably the reason why they are cheap to start with.
ReplyDeleteI hear you re Ackman. Don't think he's dishonest, but he knows his impact & isn't afraid to talk when he wants. Like your comparison to MANU though. This is interesting.
Delete@MDC - I've only been reading the blog for about 2 years (and love it - thanks btw!). It looks like you've held HHH since the inception of the blog - for us relative newbies, why do you like HHH so much?
ReplyDeleteThanks for the kind words. Yeah, I've held it since shortly after the spin from GGP, the original setup was super interesting. The "stray dogs and cats" assets that was designed to make GGP look more attractive, it worked well for the first few years until oil prices dropped and people became concerned with their Houston exposure. Then after that, they started developing the Seaport, covid hit, etc., and it never really recovered. I'm probably just emotionally attached to it, could have played too much SimCity as a kid, but I like the business, enjoy following it, etc. It hasn't been a large holding in a while, have a lot of built up knowledge of the company, could pay off here as I have added some call options. I think the market is discounting Ackman a bit too much, he is a flake, but think there's a better chance than the market is pricing that he'll actually follow through here. Famous last words possibly.
DeleteRandom unrelated comment:
ReplyDeleteThere are many preferreds or bonds that are fairly likely to return mid to high double digit yields as the federal reserve lowers interest rates. With the risk being you just own a 7-9% yielding instrument. So definitely not a shooting the lights out type of investment but a low risk investment with decent upside.
Any particular tickers you like best?
DeleteMid to high teens yield**
DeleteThere's a million that'll work.
VLYPP, DCOMP, Various utility preferreds and bonds. Hawaii Electric as a potentially good example (unless they are unable to either sell ASB or are unable to finance their wildfire liability claims), FULTP, MBINN, PBI/B, Various US Cellular and TDS bonds / preferreds.
If the fed doesn't lower rates or doesn't lower them very quickly then these are less interesting.
Possibly a dumb question, but I’m trying to learn more—why would lower interest rates drive the yields up?
DeleteTotal return*
DeleteLower interest rates (all else equal) cause preferred stock and bonds to go up in price.
Check out the price of various preferred or bonds trading below par now compared to what they were in 2021-2022. Then add the dividends or interest and calculate the return if the stock or bond takes a year or 2 to get back there.
People say yield to maturity etc to mean total return. Even though yield usually means just the return from the income portion of an investment.
DeleteHoping there is more content in the pipeline CSV!
ReplyDelete