Investing.com — Pershing Square’s Bill Ackman has proposed a merger between Howard Hughes Holdings Inc. (NYSE:HHH) and a subsidiary of Pershing Square Holdco, L.P. The proposal comes in the wake of HHH’s disappointing stock price performance, despite business progress since its public debut over 14 years ago.
In the proposed transaction, a newly formed merger subsidiary of Pershing Square Holdco would merge with HHH, with the latter surviving as the corporation. HHH stockholders would have the option to receive most of their merger consideration in cash at $85.00 per share, a premium of 38.3% to the unaffected stock price, and a premium of 18.4% to the closing price last Friday. The balance would be in stock of the post-merger company.
The merger would benefit HHH stockholders by providing a cash/stock election, enabling them to receive merger consideration in cash at $85 per share, or to roll-over all or a part of their shares into the post-merger company. This election would be subject to proration to ensure that the company maintains a public float of at least 13.6 million shares, or 30.8% of the company’s then issued and outstanding share capital.
Pershing Square’s affiliated investment funds would elect to roll-over their 37.6% stake in the company. Ackman also mentioned the possibility of inviting a small consortium of strategic partners to join in the transaction to provide additional balance sheet resources to HHH or acquire a portion of the Pershing Square Funds’ roll-over stake.
The proposed transaction is essentially a purchase by Pershing Square Holdco of 11,764,706 shares at $85 per share for $1 billion from non-Pershing Square affiliate shareholders of HHH, and a simultaneous $500 million share repurchase by the Company at $85 per share for up to 5,882,353 shares from the public float shareholders. The $500 million repurchase will be financed by bonds newly issued by the Company.
Following the transaction, the senior leadership team of Pershing Square Holdco would assume executive leadership roles at HHH, but not at Howard Hughes Corporation (HHC), HHH’s principal real estate subsidiary. The HHH senior leadership team would include Bill Ackman as Chairman and CEO, Ryan Israel as Chief Investment Officer, Ben Hakim as President, Mike Gonnella as CFO, and Halit Coussin as Chief Legal Officer.
The resources of Pershing Square Holdco, including its investment team, transaction sourcing and execution capabilities, investment research and due diligence skills, macro hedging strategy and execution capabilities, private and public capital raising capabilities, and accounting, finance, legal, technology, investor relations and administrative teams, would be made available to HHH.
The Howard Hughes Corporation Master Planned Communities (MPC) historical line of business would remain entirely unchanged. HHC would continue to pursue its long-term strategic objectives and would be managed by the current senior leadership team led by David O’Reilly as CEO. No changes are expected in the HHC organization, its employees, or its long-term strategy, and all HHH current employees are expected to remain employed as a result of the transaction.
HHH, the holding company to HHC, would become a diversified holding company. HHH and its HHC subsidiary would operate largely independently with oversight from the HHH board and its new senior leadership team. HHH would acquire controlling interests in operating companies. HHH would invest the excess cash resources of its HHC subsidiary in new companies and assets with the long-term goal of growing HHH’s per-share intrinsic value at a high compound rate of return.
Pershing Square’s management team and resources would be contributed to HHH, and HHH would invest the excess cash and other financial resources of the Company to diversify its business through the acquisition of new operating companies and other assets. The Pershing Square team also brings expertise in hedging macro and other risks, capabilities that can be used to help mitigate HHC’s real estate and MPC businesses’ exposure to interest rate risk, commodity price risk, as well as other market, economic, and geopolitical risks.
The transaction is subject to the approval of the Board of Directors of the Company, the negotiation and execution of mutually acceptable definitive transaction documents, and the completion of limited confirmatory due diligence.
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