Wednesday, March 29, 2017

Pershing Square's 2016 Annual Report: VRX, APD, FNMA, HLF, HHC, MDLZ, NOMD, PAH, QSR

Bill Ackman's hedge fund firm Pershing Square Capital Management is out with its 2016 annual report.

Pershing Square lost 13.5% net in 2016.  The bulk of this loss was attributed to its previous position in Valeant Pharmaceuticals (VRX).

Ackman writes about why they ended up selling VRX:

"If the stock price had increased even very substantially from here, the impact on our overall performance would have been modest, and would not compensate  us for the human resources and substantial mindshare that this investment had and would have continued to consume  if we had remained a shareholder.  Furthermore, while Valeant has made significant progress and we expect  management to continue to do so, there is still a lot of work to be done.  

Clearly, our investment in Valeant was a huge mistake.  Th e highly acquisitive nature of Valeant’s business required  flawless capital allocation and operational execution, and th erefore, a larger than no rmal degree of reliance on  management.  In retrospect, we misjudged the prior management team and this contributed to our loss.  We deeply  regret this mistake, which has cost  all of us a tremendous amount, and whic h has damaged the record of success of  our firm." 

Despite the poor 2016, Pershing points out that they've generated a compound annual return of 14.8% compared to S&P returns of 7.7% over the same time period.

The report also details portfolio updates on numerous positions, including: Air Products & Chemicals (APD), Fannie Mae (FNMA) / Freddie Mac (FMCC), their short of Herbalife (HLF), Howard Hughes (HHC), Mondelez (MDLZ), Nomad Foods (NOMD), Platform Specialty Products (PAH), and Restaurant Brands (QSR).

They also touch on some of the positions they've exited.

Embedded below is Pershing Square's 2016 annual report:

You can download a .pdf copy here.

Tuesday, March 28, 2017

Greenlight Capital's General Motors Presentation: Unlocking Value at GM

David Einhorn's hedge fund Greenlight Capital has put out a slide deck on its large position in General Motors (GM).  The presentation is entitled: "Unlocking Value at GM: Two Classes of Common Shares."

Basically, Greenlight has asked the company to change its capital structure in order to unlock 'substantial shareholder value.'  The hedge fund has proposed that GM distribute 'dividend shares' on a tax-free basis.

Greenlight concludes that, "Creating two classes of common stock will unlock GM's value by forcing the market to appropriately value the dividend and give credit for GM's earnings potential.

Regarding how the company responded to these ideas, CNBC's David Faber tweeted that "GM considered Greenlight proposal for and rejected after months of meetings with management and board - sources." 

He also tweeted:  "GM rejected Greenlight proposal citing potential loss of Inv grade rating, governance challenge and uncertain demand for new shares - sources."

Embedded below is Greenlight's presentation: Unlocking Value at GM:

You can download a .pdf copy here.

For more on this fund, be sure to also check out Greenlight Capital's Q4 letter where they drastically increased their GM position.