Fannie Mae-No Politics (FNMA)

[TheMotivatedTrader]

First post-conference call article for Pershing 3Q 2014:

http://www.valuewalk.com/2014/11/ackman-confirms-allergan-talks-valeant/

In conference call, Ackman wonders if Herbalife will collapse of its own accord or with government assistance

Allergan, Inc. (NYSE:AGN) is currently in direct negotiations with Valeant Pharmaceuticals Intl Inc (NYSE:VRX) (TSE:VRX), Pershing Square’s founder Bill Ackman confirmed on a conference call with investors today, as the hedge fund delivered positive October performance of 0.7 percent to 1.4 percent across its various fund structures. Year to date performance is 32.5 percent and 35 percent.

Winners for the month included long exposure to Canadian Pacific Railway Limited (NYSE:CP) (TSE:CP), Allergan and Burger King Worldwide Inc (NYSE:BKW), and the fund saw profits in a short position in Herbalife Ltd. (NYSE:HLF). Losers included Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA), Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC), Platform and Howard Hughes Corp (NYSE:HHC).

Bill Ackman Pershing Square Allergan

Allergan open to negotiations after Ackman’s letter

“Press reports are accurate,” Ackman said, saying they are now engaged in direct discussions with Allergan. ValueWalk had exclusively reported last week that Allergan was open to negotiations after Ackman posted a letter to Allergan’s board encouraging the firm to negotiate its sale. No information on the progress of those negotiations was revealed, but Ackman did note that a December 18 proxy meeting was looming and “the clock is ticking.”

In regards to Herbalife Ltd. (NYSE:HLF), a famous short of the hedge fund, Ackman attributed the company’s poor second and third quarter earnings, as well as poor guidance going forward, due to the inability to sell distributorships. “This have everything to do with the sale of a fraudulent business opportunity,” Ackman said, saying it it was a real nutrition company it would be addressing obesity. The big question is “will the business collapse on its own accord or will it happen with government intervention.” The hedge fund also sent a letter to the firm that lays out “what a compliance operation at Herbalife should look like.” Ackman also said he anticipates Herbalife to repay debt that is coming due to the fact they have “little in the way of assets” and should have trouble paying back this loan.

In regards to Burger King, the Pershing Square portfolio managers expressed a great degree of confidence in Brazilian private equity firm 3-G, which they think will run the firm effectively and that a tax inversion played a small role in the motivation for a deal. Pershing Square said there was significant cross-selling opportunity with Burger King franchises, who might be interested in opening a Tim Horton in the U.S. The investors receive 5 percent of all revenue Burger King generates, which Ackman called an “inflation protected, currency hedged annuity.”

Ackman expects Fannie Mae and Freddie Mac’s issue to be overturned in courts

In regards to Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA), Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC), Ackman said he expects the issue to be overturned in court on appeal. “The litigation strategy is to recover what was stolen,” Ackman said, while the potential for settlement exists. The U.S. government took control of the stock, taking all profits, without properly compensating shareholders, Ackman said, pointing to a larger issue. “If the government can take profits… without providing appropriate compensation… it can take the profits of every corporation.”

A big winner for the fund in the month was Canadian Pacific, a railroad firm that delivered great third quarter despite congestion in Chicago. The firm has a “culture of accountability,” and specifically outlined financial targets, citing increased railroad speed and efficiency to deliver goods.

In regards to risk management, the fund actively considers outlier protection methods. When it thought a Eurozone implosion was possible, it bought swaps credit default insurance. It also purchased call options on the Hong Kong dollar as a hedge and also as a speculative play, saying it was a mispriced option. Ackman said some of the social unrest in Hong Kong is due to the rising cost of living among lower economic classes. One government solution might be to make the Hong Kong dollar rise.