Bill Ackman: The Optimist

Bill Ackman’s friends describe him in two ways. They offer the euphemism that the prominent hedge fund manager “does not suffer from low self-esteem.” Then they observe that he is optimistic—almost clinically so. A pop psychologist might diagnose Ackman with hypomania, a condition notable for persistently elevated moods but without the self-destructiveness of true mania. “He doesn’t register reversals and defeats and hard feelings the way other people do,” says David Klafter, a former colleague.

I ask Ackman about the condition while he is driving in a car with his family. He hasn’t heard of it, but says he is an “extremely resilient person.”

His 11-year-old daughter playfully chides from the backseat, “And you’re modest.”

Ackman is an activist investor, a respectable term for people who in the 1980s were known as corporate raiders. He buys big stakes in companies and then offers his opinions—loudly—on how to improve their operations. Often, Ackman has been a contrarian. He bought shares of Rockefeller Center when Manhattan real estate was on its back in the mid-1990s, and he launched an attack in 2002 on MBIA Inc., the powerful and politically connected bond insurer, when everyone else on Wall Street was convinced the company was gold-plated. In early 2007, he sounded one of the most prescient warnings about the credit bubble and the leveraged complex of American finance.

William A. Ackman, who turns 43 this month, has had the seminal financial career of the past two decades, which is to say that he’s had the seminal American career of the era. Almost immediately after business school, he started a hedge fund to manage millions for wealthy people—with no investing track record. About a decade later, he was forced to shut down. He endured regulatory investigations played out in the klieg lights of the press. He relaunched and clawed his way back to respectability, becoming a member of a new generation of Wall Street wise men. No hedge fund manager or investment banker will be able to replicate his trajectory for at least a generation.

Now he’s gearing up for one of the biggest battles of his professional life. After losing nearly $2 billion in a calamitous bet on the retailer Target Corp.—almost all that investors had given him for the investment—he is waging a proxy fight against the company. He will have a tough sell in the leadup to the annual shareholder meeting in May. Taking on a company as big as Target is almost unheard of. Target decries the contest as “costly and disruptive.”

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Bill Ackman Interview by Charlie Rose

Bill Ackman's Letter to Shareholders and Board of Directors of Longs Drug

Longs’ Valuation

In light of the disparate collection of assets that comprises Longs, we believe that the conventional valuation shorthand of precedent transaction multiples, discounted cash flow analyses and trading comparables fails to reflect a fair value for the Company. The four unique value drivers that distinguish Longs include (1) owned real estate, (2) leasehold real estate, (3) the PBM business and (4) readily available operating improvements to the Company’s core retail operation.

Owned Full Service Real Estate¹

Based on the Company’s disclosure in its 2008 10-K, we believe that the Company owns approximately 3 million square feet of real estate. After discussions with real estate investors with expertise and retail ownership in the California and Hawaii markets, we believe that a very conservative $30 per square foot market rent for these properties is appropriate. At a 7% capitalization rate, the value of these properties alone would be approximately $1.3 billion.

Ground Leases and Leased Full Service Real Estate

We understand that the Company’s leases typically have a 20-year initial term with three 10-year below-market renewal options, often with a favorable purchase option in the case of ground leases. Based on the Company’s public disclosures, we believe that the Company’s current rental expense is approximately $11.60 per square foot on the approximately 7.8 million square feet of full service leased real estate. Applying a $30 per square foot market rent yields a $18.40 per square foot rent spread.

Using a leasehold capitalization rate of 9%, the leaseholds are worth approximately $1.6 billion. While it is impossible to precisely estimate the portion of this value that would accrue to Longs in a monetization of these leaseholds without reviewing underlying leases, this is another overlooked source of substantial value in the business.

With owned real estate of $1.3 billion and leased full service real estate of $1.6 billion, the Company’s real estate assets alone are worth $2.9 billion, or approximately $71.50 per share. In effect, CVS is buying Longs’ real estate and is getting its PBM business and retail operations for free.

Ackman's Letter

Bill Ackman Part II: Eight Easy Steps to Becoming a Short-Seller

So you want to be a short-seller (or an activist). Here are some lessons gleaned from Pershing Square Capital founder William Ackman at our Deals & Deal Makers conference Wednesday.

Do your homework: Ackman said he gets most of his ideas not from sophisticated tips but just by "brute force" just from reading annual reports and looking for ways in which companies are undervalued by the stock market. Then he can pull just a few simple levers to boost the companies' stock valuations to where he believes it should be.

Find a theme and export it: Ackman says he invested in Sears and Sears Canada because the retailing companies financed their credit-card receivables on its own balance sheet, which wasn't well-understood by the markets. He used the same kind of thinking to tackle Target, which he believed was strong company with a solid debt profile and also one of the only retailers to still finance its credit cards in-house.In the case of Sears, Ackman evaluated it as its component parts, including Sears Hardware, Home Services, Sears Canada, Land's End and Sears Mexico, all of that is before you get to the company's extensive real estate value. "The only thing wrong is the stock price," he said, a line that drew laughs, because Ackman acknowledged later, it bore a similarity to the old joke about "other than that, how was the show, Mrs. Lincoln."

Operate unlevered: Ackman's hedge fund doesn't use debt. (A co-investment vehicle uses non-recourse leverage, which are loans that don't require collateral). "We're never exposed to market fluctuations and our prime broker doesn't make margin calls," he boasted. Without worries about debt, market panic is "just noise," he said. "It's all opportunity."

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Ackman Proposes Bond Insurer Split, Policyholder Veto

Hedge-fund manager William Ackman, who has bet against bond insurers including MBIA Inc. and Ambac Financial Group Inc., proposed restructuring the companies so more capital stays within their insurance subsidiaries.

Ackman, managing partner of Pershing Square Capital Management LP in New York, said the companies' insurance units should be divided into separate municipal and asset-backed businesses. Dividends should flow to the asset-backed unit from the stronger municipal insurance operation, he said in a proposal to regulators, lawmakers and banks yesterday.

State regulators are pressuring bond insurers to make sure the municipal debt they back retains its AAA credit ratings. Credit rating companies are reviewing whether the bond insurers still merit top ratings, given downgrades of securities backed by subprime mortgages that they guarantee.

The proposal ``offers the best prospect for protecting the most policyholders and ensuring a viable ongoing municipal bond insurance market,'' New York law firm Edwards Angell Palmer & Dodge LLP, which performed an analysis for Pershing, said in a memo included with the presentation. Copies were obtained by Bloomberg News and confirmed by Ackman.

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Ackman Devoured 140,000 Pages Challenging MBIA Rating

It was the $109,000 photocopying bill that hedge fund manager William Ackman says made him realize how much he'd read and underlined before betting against bond insurer MBIA Inc. in 2002.

His law firm charged him for copying 725,000 pages of financial statements and other documents, 140,000 of them about MBIA, to comply with a subpoena. Following New York and U.S. probes of his trading and reports, Ackman persisted in challenging MBIA's AAA credit rating for more than five years, based on his own research.

Ackman may soon be proved right. MBIA, the largest provider of insurance against defaults in the global credit market, today reported a fourth-quarter net loss of $2.3 billion because of the declining value of mortgage-related securities it guaranteed. The independent research firm CreditSights Inc. this week said MBIA's credit rating may be downgraded. Ackman had warned that MBIA was magnifying its risks by backing instruments such as those based on loans to the least creditworthy homebuyers.

``It's in the nature of a shareholder activist to be persistent,'' says Ackman, now 41. ``I've been persistent because it's an important issue. People are obsessive about stupid things. They are persistent about important things.''

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Bill Ackman, Up 22% in 2007, Boosts Bet Against MBIA

William Ackman, whose Pershing Square Capital Management LP hedge fund returned 22 percent last year, increased his bet against MBIA Inc. and said the bond insurer may need to raise $10 billion in capital to protect its policyholders.

Pershing Square increased its short positions in stock of MBIA, the biggest U.S. guarantor of bonds, and Ambac Financial Group Inc., Ackman said in an interview on Bloomberg Television today. His New York-based fund is buying more credit-default swaps of MBIA's holding company, which are used to bet on a company's ability to repay debt, he said.

``Most every week we have increased our short position,'' he said.

Ackman, 41, who co-founded a hedge fund, Gotham Partners LP, less than a year after graduating from Harvard Business School, said his bond-insurer bets gained billions of dollars as the stocks and bonds tumbled in recent months.

His stakes in Target Corp., the second-biggest U.S. discounter, and McDonald's Corp. forced executives to take steps to lower costs and consider asset sales. In December 2005, while pressing McDonald's management, Ackman worked a half-day at one of the chain's restaurants in South Florida at the invitation of a franchisee.

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Bill Ackman on MBIA & bond insurers, Blmbrg TV, 1/10/08

Bill Ackman: Short Seller Sinks Teeth Into Insurer

It was Wednesday, and Mr. Ackman, a 41-year-old hedge fund manager, was in the middle of a surprisingly well-attended news conference. He had just finished an hourlong presentation at an investment conference in Midtown Manhattan, and if truth be told, the only reason it had been contained to an hour is that Mr. Ackman had rushed through it, burying his audience in a blizzard of facts, while flipping through an astonishing 145 slides.

If the presentation and ensuing news conference proved anything, it was that Mr. Ackman was incapable of giving short answers. Then again, that’s usually the way it is with obsessives.

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Value Investing Congress: Bill Ackman

To access Bill Ackman's presentation and supporting documentation from the 3rd Annual New York Value Investing Congress, please fill in your information below and confirm that you have read and accept the disclaimer below.

Presentation & Supporting Documents

Thanks to Lincoln Minor for this link

A Storied Name on Sale?

Ackman used seemingly conservative break-up estimates. Yet the $8.5 billion enterprise value he assigned to Sears' U.S. retail real estate both on and off the mall worked out to just $33.05 per square foot, based on an estimated 257 million square feet. The number pales beside the enterprise values per square foot of Sears' various rivals.

Target and Kohl's both boast implied real-estate values of more than $300 a square foot, or around 10 times Sears' number, despite generating cash flow per square foot less than three times that of Sears. Appliance- and tool-heavy Home Depot (HD) and soft-goods-oriented Penney also have per-square-foot numbers that are multiples of Sears', weighing in at $277 and $144 respectively. The comparison gets downright nutty when Sears is compared to, say, the retailing real-estate investment trust Simon Property (SPG), which, according to Ackman, has an implied mall value per square foot of $698.

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Bill Ackman: Ackman Aims at Target's Land

A campaign to unlock value at Target is Bill Ackman's boldest move yet. And if history is any guide, the hedge fund manager is quietly employing his large network of investment banker and real estate contacts to help get backing for what will be his most difficult crusade ever.

Ackman, the head of Pershing Square Capital Management, has gained a reputation for innovative and audacious ideas to promote improvements at Wendy's and McDonald's that resulted in millions of dollars of value for shareholders.

In July, Ackman surprised Wall Street by zeroing in on Target, disclosing a 9.6% stake in the discount retailer because he felt the stock was undervalued. The fund manager said he wants to find ways to improve value at Target but didn't provide details of his intentions.

Several industry sources say that Ackman, as with his prior campaigns, is looking to generate more value from Target's real estate assets.

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Bill Ackman: Pershing Square against Ceridian Board

In an unusual step, Pershing Square said it plans to replace all seven Ceridian board members at the annual meeting scheduled for September 12. Activist hedge fund investors typically try to win one or two board seats to gain influence.

Pershing Square, Ceridian's largest stakeholder with 14.9 percent, said management is ready to sell itself too cheaply for $36 a share to buyout company Thomas H. Lee (THL.UL) and Fidelity National Financial Inc. because that deal will reward executives and board members with a $27 million payout.

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Bill Ackman: Amassing Stake in Target

Hedge fund Pershing Square Capital confirmed that it has taken a large stake in Target, and it signaled that it may make waves at the discount retailer.

Pershing, run by activist investor Bill Ackman, said in a Securities and Exchange Commission filing Monday that it has acquired about 81.8 million shares of Target, equal to a 9.6% stake.

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Bill Ackman: Pershing Square to Oppose Ceridian Deal

Pershing Square, which bought its initial stake in Ceridian in December, has been pressuring Ceridian to spin off its Comdata credit card unit rather than seek a purchaser. Pershing Square is known for its shareholder activism—a tactic based on using shareholder power to influence or direct a company in a fashion conducive to shareholder value. Shareholder activism can involve trying to replace company management or pushing for a sale of part or all of the company.

In addition to Ceridian, New York-headquartered Pershing Square has of late battled McDonald’s and Wendy’s. Pershing Square succeeded in getting McDonald’s to buy back more than $1 billion in stock and pushing Wendy’s to spin off its Tim Horton’s doughnut chain. Pershing Square is now said to be raising $2 billion in order to buy a controlling stake in a big-name company.

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Bill Ackman: Borders Group a Buy

From: Bloomberg.

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Activist investor Bill Ackman said he purchased an 11 percent stake in Borders Group Inc., the second- largest U.S. bookstore company, sending the shares up the most in 10 months.

``The stock's cheap in our opinion, and the company seems to agree,'' Ackman said today at the Value Investing Congress in New York. Borders, based in Ann Arbor, Michigan, has ``one of the most aggressive share-repurchase programs I've ever seen.''

Borders shares may be worth $36 within the next 18 months, Ackman said. The stock rose $2.11, or 9.8 percent, to $23.65 at 4:16 p.m. in trading on the New York Stock Exchange, its biggest gain since January.

``They need to fix it or get rid of'' the international and mall business, Ackman said. ``I think management understands that. The reason why it's a passive investment is because we like what management is doing.''

The company had 62 million shares outstanding as of Aug. 25, an 11 percent decline from the 70.3 million shares it had a year earlier. The company authorized the repurchase of as much as $250 million of its shares in February 2005.

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