Ackman’s London-Listed Pershing Square Gets Its Own Activist


(Bloomberg) -- Bill Ackman’s publicly traded Pershing Square Holdings Ltd. has an activist of its own.

Asset Value Investors Ltd., or AVI, which owns a 3% stake in the London-listed firm, is pushing back against Pershing Square Holdings’ decision to issue $400 million of 20-year debt without consulting shareholders.

Ackman’s London-Listed Pershing Square Gets Its Own Activist

The firm already has more debt than most of its peers and selling more bonds will constrain its ability to narrow the gap between its stock price and net asset value, according to a letter AVI sent Tuesday to Pershing Square Holdings Chairman Anne Farlow. It wants the firm to halt the debt plan and pursue a more aggressive share buyback program to close that gap. Net asset value represents the value of an investment firm’s assets minus liabilities.

“We are staggered that the board has decided to further tie its hands in this way,” AVI Executive Director Tom Treanor said. “This latest episode has confirmed to us that shareholders would likely benefit from a newly reconstituted board willing and able to properly defend and represent shareholders’ best interests.”

A representative for Pershing Square Holdings declined to comment.

Chipotle, Hilton

Pershing Square Holdings is a closed-end fund that primarily invests in companies based in North America, with stakes in Chipotle Mexican Grill Inc., Hilton Worldwide Holdings Inc. and Automatic Data Processing Inc. as of May 17, according to regulatory filings.

It’s managed by Pershing Square Capital Management, Ackman’s activist fund.

Shares in Pershing Square Holdings have risen about 41% this year, bolstered by the introduction of a dividend and share buyback programs. It closed at 14.70 pounds ($18.23) in London trading Tuesday. The firm has also returned almost 48% on its investments through July 9, according to its website.

But its share price still trades at a nearly 30% discount to its net asset value, according to Treanor. He also pointed out that its shares have fallen about 26% since it went public in 2014, while the S&P 500 has gained about 74% over the same time period.

Investors ‘Suffered’

“Shareholders have suffered from a persistently wide and growing discount to NAV, which is even more remarkable given the company’s investment portfolio is comprised of large-cap, liquid, listed securities,” he said.

AVI, which was formerly known as British Empire Trust, said in its half year 2019 report that it had made an additional investment in Pershing Square on a hedged basis at the end of the fiscal year on a hedged basis by shorting most of the company’s underlying holdings. AVI’s investment improves with the narrowing of the discount to net asset value. But the shorts also cost it money to hold.

Treanor said Tuesday that about 44% of AVI’s 6.7 million shares were hedged by shorts in Pershing Square’s underlying holdings, like Starbucks Corp., Restaurant Brands International Inc. and Chipotle. The firm said in the mid-year report that the long, unhedged portion of its investment added 68 basis points to its returns, while the hedged portion detracted 25 basis points due to the strong performance of the underlying holdings and modest discount widening.

AVI’s letter comes after Fitch Ratings downgraded Pershing Square Holdings’ rating to two levels above junk on Monday, warning that the new notes would increase its leverage ratio. The ratings firm also noted that “increasingly shareholder-oriented actions” such as paying a dividend and share buybacks were “detrimental” to the company’s credit profile.

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