This article is part of a series that provides an ongoing analysis of the changes made to Pershing Square's US long portfolio on a quarterly basis. It is based on Ackman's regulatory 13F Form filed on 02/14/2014. Please visit our Tracking Bill Ackman's Pershing Square Holdings article for an idea on how his holdings have progressed over the years and our previous update highlighting the fund's moves during Q3 2013.
Ackman's US long portfolio decreased around 20% from $10.28B to $8.23B this quarter. The number of positions reduced from 8 to 7: there were no new additions and a large position in Procter & Gamble (calls) was eliminated this quarter. The portfolio remains heavily concentrated with a few huge bets: the top five positions account for 94.06% of the total portfolio value.
Since the end of the quarter, Ackman disclosed a huge new stake in Platform Specialty Products Corporation (PAH). It is currently valued at around $560M and Ackman controls 30.9% of the shares outstanding. PAH had an IPO earlier this year and the transaction was similar to the Burger King Worldwide IPO - Prior to the NYSE listing, Platform Specialty Products was incorporated in the London Exchange last year as an investment vehicle and they acquired MacDermid in a $1.8B deal. Fannie Mae (OTCQB:FNMA) and Freddie Mac (OTCQB:FMCC) are other large long positions in the partnership - the holdings were disclosed in 13D filings on November 15, 2013 - as they are not 13F securities, they are not listed in the 13F report. Ackman holds just under 10% of the outstanding shares of both these businesses - 115.57M shares of FNMA at an average cost-basis of ~$2.30 and 63.5M shares of FMCC at an average cost-basis of $2.14. The combined investment outlay was ~$400M and it is currently valued just under $550M. Ackman also is known to have large short positions, although Herbalife is the only one publicly known - there is no regulatory requirement to disclose short positions and so only the ones that Ackman voluntarily discloses are known.
The fund had below-par results for 2013 mostly due to two outsized bets that soured - J C Penney long and Herablife short. To learn more about Bill Ackman, check-out the book "Confidence Game: How Hedge Fund Manager Bill Ackman Called Wall Street's Bluff".New stakes:
Procter & Gamble Co (PG) & CALLS: PG was a huge ~24% of the US long portfolio activist position established in Q2 2012 at prices between $59.27 and $67.57. The original position was through a combination of PG common stock and long-dated calls. The stake was increased by 28.55% in Q3 2012 at prices between $61.19 and $69.76. In Q4 2012, the long position was kept steady while the call options were reduced by one-third. The pattern continued in Q1 2013 as the call options were reduced by another 78%. Q2 2013 saw a huge reversal as the long position was drastically reduced while simultaneously increasing the position in the call options. Last quarter saw the long-position getting reduced by ~75% at prices between $75.59 and $82.17. This quarter, the position was almost eliminated. Only a small 0.73% of the US long portfolio allocation to PG common stock remains. The stock currently trades at around $79.40. Ackman has moved on from P&G - the CEO was ousted in May 2013 and the stock posted a ~20% gain in 2013.Stake Increases:
Air Products & Chemicals (APD): In Q2 2013, a new 8.44% of the US long portfolio APD stake was purchased at prices between $92.80 and $96.59. The position was since more than doubled at prices between $91 and $107. This quarter saw a marginal stake increase. The stock currently trades at around $117 and the stake stands at 21.91% of the US long portfolio - it is Ackman's second-largest position after Canadian Pacific Railway. At roughly $2.3B, this is the biggest activist stake ever for Pershing Square. The Q3 2013 investor letter disclosed that Ackman is having success with activism at APD - CEO John McGlade has agreed to retire by June 30, 2014 and three new members are set to join the company board, replacing three retiring directors. Pershing Square owns 9.8% of the shares outstanding in APD and they are very bullish - Ackman recently commented that APD should trade upwards of $200 within the next three years.
Burger King Worldwide (BKW): BKW is a 10.66% of the US long portfolio stake that was established in Q3 2012 at prices between $13.03 and $15.88. The position was increased marginally in Q1 2013 at prices between $16.31 and $19.95. This quarter saw a marginal stake increase. The stock currently trades at $25.63. Ackman's investment in Burger King Worldwide started with a transaction to acquire 29% of the company for $1.4B in April 2012. The acquisition was done through Justice Holdings, a British company controlled by Ackman. That stake is not reported in the 13F filings as Justice Holdings is a UK listed investment vehicle - it is not a 13F security. Including that, the investment in BKW rivals his stakes in Canadian Pacific Railway and Air Products & Chemicals, his largest positions.Stake Decreases:
General Growth Properties (GGP): GGP is one of Ackman's biggest wins at Pershing Square. He acquired the stake during bankruptcy in Q2 2009 in the $1 price-range and the stock currently trades at $21.92! The stake was kept steady in Q1 2013 after it was increased by around 3.5% in Q3 2012 at prices between $17.20 and $20.99. In Q2 2013, the position was reduced by 9.3% at prices between $19.32 and $23.33. It was further reduced by ~48% last quarter at prices between $18.69 and $21.64. This quarter saw a 23% stake reduction at prices between $19.29 and $21.61. On February 11, 2014, it was announced that his remaining ~28M share position was sold back to GGP for $556M. He harvested huge gains from the position. Ackman commented that his effort (pushing the company to file bankruptcy in 2009 and guiding it back to health) turned $60M into $1.6B in less than 5 years, an annualized return of just under 100%!
Canadian Pacific Railway (CP): CP is Pershing Square's largest 13F position at 31.55 % of the US long portfolio. The stake was established in Q3 2011 with the bulk purchased in Q4 2011 at prices between $46.05 and $71.82. The stock currently trades at around $155. Ackman reigned in management and board changes at the company by winning a proxy battle in May 2012. The position was marginally reduced last quarter at prices between $117 and $130 and by ~26% this quarter at prices between $123 and $157. Ackman is starting to harvest large gains from this position.
The remaining two positions were untouched during the quarter:
Beam Inc. (BEAM): BEAM is a spin-off from Fortune Brands and the stock is up around 50% since the spin-off in September 2011. Ackman acquired the stake in Fortune Brands in 2010 and his cost-basis is well below the spin-off price. On 01/14/2014, Suntory Holdings of Japan announced the acquisition of BEAM at $83.50 cash-per-share. Soon after, Ackman disclosed that one-third of the position was sold at a price-per-share of around $83. Here again, Ackman started to harvest huge gains from this position.
Howard Hughes Corp (HHC): HHC is a small 5.21% of the US long portfolio position that was established in 2010 as a result of its spin-off from GGP. The stake has remained untouched during the whole period. The stock returned ~63% in 2013. Ackman called HHC one of the best kept secrets on Wall Street at the Harbor Investor Conference in February 2013.
The spreadsheet below highlights changes to Pershing Square's US stock holdings in Q4 2013: