Overview: Howard Hughes shares experienced a significant uptick on Tuesday following hints of an important announcement from Bill Ackman. Ackman’s Pershing Square increased its takeover offer for Howard Hughes to $90 per share, as he aims to establish a company akin to Berkshire Hathaway.
The Move: Howard Hughes Holdings saw its shares rise sharply in the final hour of trading on Tuesday. Following a post from Ackman on X about an upcoming announcement, the stock closed 6.8% higher at $80.60. Shortly thereafter, Pershing Square revealed at 4 p.m. ET that it had upped its acquisition bid for the company. The new proposal entails the purchase of 10 million newly issued shares at $90 each, a rise from the original January offer of $85.
However, shares of Howard Hughes dipped by 4.6% in after-hours trading, with the company holding a market capitalization of approximately $4 billion.
Reasoning: Ackman has been seeking a stake in Howard Hughes for several months, inspired by Berkshire Hathaway’s trajectory. Warren Buffett transformed Berkshire from a textile company into a massive holding corporation after several key mergers. Ackman envisions a similar path for Howard Hughes in his efforts.
In his recent announcement on X, Ackman recalled his initial aspiration to establish a diversified holding company with a strong long-term performance, citing Buffett as a major influence.
Pershing Square’s latest proposition follows an earlier proposal made in January, which included plans to merge a new subsidiary with Howard Hughes and to purchase 11.8 million shares from unrelated shareholders at $85 each. Ackman would assume the roles of chairman and CEO under this deal, asserting it could evolve Howard Hughes into a contemporary version of Berkshire Hathaway.
In acknowledgment of the revised proposal, Howard Hughes has confirmed its receipt and is currently evaluating it. This is not the first time Ackman has pursued a Buffett-like strategy; in 2015, he likened his investment in Valeant Pharmaceuticals to an early stage of Berkshire Hathaway, later selling at a notable loss.
Investor Sentiment: The rapid change in Howard Hughes’ stock price on Tuesday indicates a degree of disappointment among investors regarding Pershing Square’s offer. Analysts from Piper Sandler have pointed out that the proposal does not meet Howard Hughes’ net asset value of $118. They noted that the stock’s tepid reaction to the prior January vision signals that existing shareholders are hesitant to sell undervalued assets.
Howard Hughes’ share price initially surged by 9.5% following Pershing Square’s January proposal but has since moderated its gains, showing a year-to-date increase of 4.8%.
Market Analysis: Analysts from Piper Sandler opined that Pershing Square’s latest bid for Howard Hughes likely does not benefit current shareholders. They predict that the independent board of Howard Hughes may not approve this revised offer, given the company’s financial stability without the proposed $900 million influx. They suggest that a cash offer of $100 per share would likely be more attractive.
John Kim, a US real estate analyst with BMO Capital Markets, stated that the new offer raises more questions than it answers regarding investment strategies. He emphasized the uncertainty surrounding the trading dynamics of a potentially more diversified Howard Hughes.
Analysts from Piper Sandler reassure that Howard Hughes shareholders still hold leverage, implying that Pershing Square will continue its efforts to sway the company’s decision in its favor.
