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Bill has always had a thing for Warren Buffett, as my faithful readers know. In fact, he seems to believe the current deal, if completed, would give him a leg up on his idol. As Bill recently told me, Howard Hughes is “a lot better than a crappy textile company, right? It’s actually a really good business. And it’s going to become a lot more cash-flow positive over the next decade, and we can just redeploy that capital.” Bill has tried any number of tactics over the years to obtain his version of “permanent capital,” including the largest SPAC ever—which later got completely unwound—and something Bill called a “SPARC,” which is still floating around out there, waiting for a company to buy. His motivation for futzing with Howard Hughes, he explained on the Spaces chat, was the fact that it’s essentially been a dud of an investment since it was spun off from General Growth Properties, one of Bill’s huge winners back in the day. Bill noted that he’s been on the Howard Hughes board since it was spun off and that, in 2019, the company hired Centerview Partners to do “a full-court press” and sell the company. Alas, there were no takers. Last summer, he hired Jefferies to take Howard Hughes private. The bank approached 284 investors, 40 of which signed nondisclosure agreements and kicked the tires. Around 20 of the 40 took the next step. But, in the end, there were no “formal” or “informal” expressions of interest in the company. Another goose egg. (Potential investors couldn’t see the “path to liquidity” after taking the company private, Bill said.) Bill Ackman, man of action, had to do something. On a trip to the beach over Christmas, he realized the answer was right there in front of him, like a beached whale: Turn Howard Hughes into his Berkshire Hathaway!

During his livestream last week, Bill said the special committee of the Howard Hughes board had only two questions to answer. First: Should Bill and Pershing be allowed to increase their stake to 48 percent? He thinks this should be an easy one, since the transaction wouldn’t result in a change of control. “At 37.6 percent, we’re already obviously a very influential shareholder in the company,” he said. “I don’t think our influence meaningfully changes” when Pershing increases that stake to 48 percent. The second question is more complicated: Does Howard Hughes, itself, want to become the next Berkshire Hathaway? If so, should Pershing Square be paid for its help in transforming the company, and what form should that compensation take? Bill tried to answer these questions with a long-winded stem-winder about Pershing Square’s stellar track record—a few clunkers aside, such as Valeant Pharmaceuticals, Herbalife, and JCPenney—and how much value he and his team can bring to the table on behalf of Howard Hughes’ shareholders. “What is happening here is a new management team that’s coming on board to run the holding company, and we’re adding an extra $810 million to our investment in a company—a personal investment,” Bill said. “This has to be the largest investment probably ever made by a new management team stepping in to run a public company.” He told listeners that his personal investment in the company would increase to $764 million; the only other personal investment he has of that magnitude is what he has in Pershing Square Holdings, his publicly traded investment company based in Amsterdam. As for the fees he’s charging, Bill argued that Howard Hughes would be getting a bargain. “We’re getting paid one and a half percent in this transaction of the equity market cap of Howard Hughes going forward, paid on a quarterly basis,” he said. “No promotes, no performance allocation, no performance-based fees, no equity, no options, no restricted stock.” He said he normally charges fees of 1.5 percent of assets under management plus a “performance” fee of between 16 percent and 20 percent based on realized and unrealized gains. So, you know, a bargain for Howard Hughes. On the Spaces call, Bill also took questions from some of the 2,000 or so people listening in. I asked Bill how his revised offer to invest $900 million in Howard Hughes advanced his goal of being his generation’s Buffett. (I couldn’t resist.) You’ll be stunned to hear that he wasn’t modest: “Buffett was an inspiration to me when I was in my early 20s, … and he’s been an inspiration ever since,” Bill said, adding that when he raised his first hedge fund, at age 26, he resolved to have a “better record” than Warren. “It’s good to set a high bar.” What makes Buffett unique, of course, is that he truly has permanent capital—investors can’t take their money away from him if they get nervous for whatever reason. They could always sell their Berkshire Hathaway stock, but that doesn’t remove money from Warren’s cash hoard, as would happen if, say, a limited partner wanted their money back from Bill’s hedge fund. “It’s much harder to manage capital when your money can disappear overnight,” Bill said on the call. Bill does have a permanent capital vehicle of sorts in Pershing Square Holdings, which buys minority stakes in public companies. But he wants more flexibility. “The big advantage Buffett has beyond permanent capital is he owns businesses that generate cash and generate excess cash that he can redeploy into buying new businesses,” Bill said in answer to my question. “The holy grail is to have a public entity—permanent capital—that owns operating businesses that generate more cash than they can use in their own business, that you can redeploy in buying new companies.” Bill went on to reiterate that his revised proposal puts $900 million more cash on Howard Hughes’s balance sheet, and that capital, along with the existing $500 million, gives the company $1.4 billion of firepower for acquiring companies. Over time, he said, the deal will provide him and Howard Hughes shareholders a nice return. “And that’s why it works,” he concluded. Well, maybe. It’s still a modest amount of firepower for someone with Buffett-like ambitions. And since Bill announced his $900 million purchase offer last week, Howard Hughes stock has been a nothingburger, down about 9 percent. Bill has the ability to make everything he does seem like a profound bit of alchemy, but it doesn’t always work out that way. Which reminds me of something Bill told me that Warren once told him: “‘The only person who could cause you more harm than a thief with a dagger is a journalist with a pen.’” Bill paused for a moment while conjuring the memory. “Those were very powerful words.”

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