Bill Ackman’s revised proposal to buy real estate developer Howard Hughes didn’t impress Wall Street analysts who believe the deal doesn’t create much value for current shareholders. The billionaire investor said Tuesday Pershing Square has submitted a proposal to acquire 10 million newly issued Howard Hughes shares at $90 each. In January, Ackman proposed forming a new subsidiary of Pershing to merge with Howard Hughes, offering current holders $85 a share. “While the $90/share value being placed on the shares is better than $85/share previously, the higher share price is not being offered to existing investors,” JPMorgan analyst Anthony Paolone said in a note. “The ability for common shareholders to realize and monetize this value may be even more difficult than the prior proposal.” The January proposal also included a $500 million share repurchase financed by newly issued bonds. Ackman’s new plan doesn’t mention a share repurchase. Ackman said the unique career path of the legendary Warren Buffett inspired him. The “Oracle of Omaha” started out running a series of private partnerships, until the 1960s when he closed his partnerships and took control of Berkshire Hathaway, a struggling textile business . Over the span of six decades, Buffett transformed Berkshire into a $1 trillion conglomerate with businesses spanning insurance, energy, railroad and retail. Howard Hughes shares jumped on Tuesday after Ackman teased a revised offer was on its way, with the stock closing up 6.8% at $80.60. But the stock is trading down about 7% on Wednesday in reaction to the new plan. “The latest PS proposal doesn’t offer any cash realization today but rather speaks to converting existing shareholders into investors of PS’ hoped-for version of Berkshire Hathaway,” Piper Sandler analyst Alexander Goldfarb said in a note. Goldfarb believes a fully financed, all-cash offer around $100 per share would be received more favorably. Added layer of management fees Analysts also took issue with the management fee that Ackman proposed. If the deal comes to fruition, Pershing would receive an annual fee, paid quarterly, of 1.5% of Howard Hughes’ equity market capitalization. “In the new proposal, existing investors have to hope that the stock in its new state will trade better than HHH has historically,” Paolone said. “We think this is a stretch, particularly given that the new state of the company under Ackman/Pershing Square control will include the added layer of 1.5% in annual management fees paid to Pershing Square to run HHH.” If the newly proposed transaction goes through, Pershing Square will own 48% of the real estate developer based in The Woodlands, Texas. The revised transaction does not require regulatory approvals, a shareholder vote or financing, so it can be completed in a few weeks. “We believe the revised offer leaves more questions than answers and doesn’t provide the relief many investors were anticipating with a take-private transaction,” BMO analyst John Kim said in a note. “It remains unclear how new HHH will trade, as a more diversified vehicle, with access to valuable resources.” — CNBC’s Michael Bloom contributed reporting.
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