Andrew Bary

Investor Bill Ackman said shares of Howard Hughes Holding could fall into the low 60s if his proposal to buy stock in the real estate company and turn it into a modern-day Berkshire Hathaway is rejected.

Shares of Howard Hughes -- developer of planned communities in Houston, Las Vegas, and other areas -- ended Friday at $79.20, up 2.3%. The stock gained 4.4% Thursday as investors reacted to favorable fourth-quarter results and 2025 financial guidance.

In a podcast hosted by Boyar Value Group President Jonathan Boyar, Ackman also said he would like to build an insurance business within Howard Hughes if the company's board accepts his proposal.

Ackman, who heads Pershing Square Capital Management, an investment firm with nearly $20 billion in assets, said Howard Hughes would build an insurer rather than buy one.

"We have likely identified a leader who our plan would be to recruit into Howard Hughes, behind which we would build an insurance operation. There's a reason why (Warren) Buffett has used insurance to generate low-cost float and as an investment vehicle, and that's certainly in the cards for this company," Ackman said.

Building an successful insurer is no easy feat, given the challenge of underwriting profitably.

Ackman told Boyar that Pershing Square's proposal is underpinning the stock.

"If we disappeared tomorrow, the stock at best is in the low 60s," Ackman said.

The proposal would involve Pershing Square's purchase of 10 million shares of stock at $90 a share, which would lift the firm's stake -- including funds and management company -- to 48% from 37.6% and boost shares outstanding to about 60 million from 50 million. Existing shareholders would continue to hold their stock.

Pershing Square's senior leadership would then manage the Howard Hughes holding company and make new investments with the existing company management team handling the real estate business.

The outlook for Ackman proposal is uncertain. Some Howard Hughes shareholders aren't happy with it, preferring the company focus on its real estate strategy, which is bearing fruit. Ackman's prior proposal would have given Pershing Square a larger percentage stake in the company.

"Given that the company can generate attractive returns and margins on its own cash flow, I do think it supports the idea that a structure and strategy change is not what the market is looking for." says Patrick Kaser, a portfolio manager for Brandywine Global, which owns the stock.

"The stock's gain (Thursday) despite an absence of comment on the deal can't be attributed to hopes for a structure change -- the stock is up because the company is executing well, and cash return is not off the table," he added.

Ackman's detractors say he should pay a control premium to buy the whole company at $100 a share or more.

The company can self-finance its real estate development. The $900 million that Pershing Square would invest would go toward buying and developing non-real estate businesses. The company has put its net asset value at $118 a share.

Among the complaints about the Ackman proposal is that Pershing Square would get a 1.5% annual management fee for overseeing the transition, which could total $70 million a year, a sizable amount relative the company's income. The fee would be based on the company's market value, which is now around $4 billion but would be close to $5 billion if the Ackman deal gets done.

Ackman said he is open to potential modifications of that fee.

How the stock will trade if the Ackman plan is accepted or rejected by the company is open to debate. Ackman argues a successful deal would be viewed favorably by investors who would like to ride with him in creating a small-scale Berkshire-like holding company.

But the company would then be a mix of real estate, possibly insurance, and other businesses. Such a hodgepodge might not trade well in the stock market.

And if the deal dies, Howard Hughes might trade down, as Ackman argued, given what he says is a limited investor base for the company.

He also said investors would fear potential sales of stock by Pershing Square if the deal dies. It's possible, however, that the stock could hold around current levels as investors take comfort from a real estate strategy that is paying off and then could appreciate.

Write to Andrew Bary at andrew.bary@barrons.com

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February 28, 2025 18:07 ET (23:07 GMT)

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