After the close Thursday, Pershing Square, the hedge fund run by Bill Ackman, filed a 13-D revealing the hedge fund had taken a large position in Alexander & Baldwin (ALEX). The joint filing shows Pershing Square and Richard McGuire's Marcato Fund had taken a 9.9% stake in Alexander & Baldwin, which has real estate, shipping and agribusiness operations in Hawaii. Including cash-settled total return swaps, they have economic exposure to 10.8% of Alexander & Baldwin. The filing states that Ackman and McGuire intend to "engage in discussions with management, the board and other stockholders" regarding Alexander & Baldwin's business, assets and operations, among other things.
A look back at the 13F filed by Pershing Square in February lists top holdings as of December 31, 2010, as:
The General Growth stake was acquired as Ackman and Pershing steered GGP through its bankruptcy and recapitalization, but General Growth is a mall owner, and Alexander & Baldwin has real estate operations, so that is a common theme. The J.C. Penny stake is an attempt to turn around a retailer, as well as capitalize on J.C. Penny's attractively priced real estate assets. This theme of attempting to find value in real estate assets has also been seen by Blackstone in recent months, although it is unclear if the real estate assets were a driver of Ackman's investment here. While the first two holdings seem to only have real estate assets in common with Alexander & Baldwin, the position in Fortune Brands may be most telling about what Ackman plans to do with Alexander & Baldwin.
On October 8, 2010, Pershing Square revealed its 11% stake in Fortune, which has a liquors and spirits business, a home goods business, and a golf business. Shares in Fortune, which had been trading around $50, spiked nearly 10% to above $55 that day. After initially rejecting Ackman's call to break the company up, on December 7th Fortune confirmed plans to divide the company up into 3 units, keeping the liquor business, spinning out the home goods business, and exploring a sale of the golf business. That day, shares closed above $61, after some volatile trading in the 2 months in between.
Because Alexander & Baldwin is so similar to Fortune Brands in that both companies have several units that provide little synergies, I expect Ackman to pursue a similar strategy in pushing Alexander to break itself up to unlock shareholder value. While the $168 million Pershing and Marcato have invested is dwarfed by the billion dollar stakes in Pershing's largest holdings, Ackman's quick success at Fortune shows his ability to achieve his goals. Also, given the small nature of this company relative to the others Ackman has been involved in, Alexander & Baldwin's assets will be more affordable and attract interest from more people, should the company be split up.
Using Ackman's actions in Fortune Brands as a blueprint, it seems likely Ackman will push for a split up and sale of Alexander & Baldwin's different units. While shares have rallied nearly 10% after hours, they likely have at least another 10% left on the upside, just as Fortune Brands did. Investors buying ALEX shares to piggyback off Ackman's involvement have already missed the first move in shares, but can still participate to the upside as Ackman works to increase the value of his stake.