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The gentlemanly hedge fund manager

'Subtle' involvement in companies the key to success of Pershing Square's Bill Ackman

If there's such a thing as an activist hedge fund manager with a kinder, gentler face, it probably is Bill Ackman.

The managing partner of New York-based Pershing Square Capital Management LP is best known in this country for helping to stop Sears Holdings Corp.'s attempt to take private its Canadian unit Sears Canada Inc.

Pershing revealed its latest major investment yesterday with a regulatory filing that said it has picked up a 9.6-per-cent stake in Target Corp., the U.S. retailer that developed a reputation for selling designer goods at low prices.

Another of Mr. Ackman's investments, McDonald's Corp., yesterday posted its first loss in four years because of the costs of asset sales, but revealed strong underlying results. Global sales at McDonald's were up 7.4 per cent in the quarter ended June 30.

Mr. Ackman's relatively subtle hand was on display at McDonald's, which sold off 1,600 restaurants in Latin America and the Caribbean after prodding from Pershing. Some of the proceeds will go to dividends and share buybacks, uses favoured by Mr. Ackman.

"Subtle" is the key word, said Art Barry, a manager with Boston investment management firm Loomis Sayles & Co., which holds close to one million McDonald's shares. Compared with some other activist hedge fund managers who want to bust up firms and sell off the parts, Mr. Ackman is "a little more subtle and a little less confrontational - he's less of an agitator." In the end, that usually means fewer job losses and less disruption to employees, Mr. Barry added.

While Mr. Ackman "is not directly responsible for the overall results McDonald's has posted," Mr. Barry said, "he turned up the heat a little bit on management [and] that certainly helped."

In its filing with the U.S. Securities and Exchange Commission, Pershing said it believes "that [Target's] common stock is undervalued and [it intends] to discuss with management ways in which this undervaluation can be corrected."

The first media reports of the share acquisition last Friday were enough to push Target shares up 6 per cent.

While some analysts said they expect Pershing to suggest Target sell off its credit card operations, Mr. Ackman declined in a telephone interview to comment on his specific intentions for the retailer.

But he did agree that his firm takes less of a slash-and-burn approach than many other hedge funds, partly because it often has interests that are very similar to those of the shareholders and managers.

"We generally don't look for situations where the company is horribly managed and you need to fire the management and half of the employees," he said. "We look for situations where the business is a good business, and ideally management is already doing a good job [but] there are some things they could be doing that can be accomplished with relative ease [to] create a lot of value."

The goal is not to push up the stock over the short term, he said, but to come up with ideas that fit into the long-term strategy of the business.

Pershing also tends to take large stakes in a small number of companies, and hold them over longer periods.

In Canada, aside from its Sears holding, Pershing also has a position in Canadian Tire Corp. Ltd. While Canadian Tire executives say Pershing is not pushing for major changes, the U.S. firm has evidently suggested selling off some assets such as the credit card portfolio and non-core real estate.

One other Canadian connection: After Pershing became a shareholder of Wendy's International Inc. in 2005, it encouraged the burger chain to spin off its holdings of Tim Hortons Inc. into a new public company.

Canada is on the Pershing radar screen, Mr. Ackman said, because "it's close to home, English is spoken, and there are some good businesses in Canada."

Randy Lampert, managing director of New York investment bank Morgan Joseph & Co. and the author of a study of activist investors, said Mr. Ackman is a thoughtful buyer. "He is very analytical and does a lot of in-depth thinking about his stock purchases. He is very sharp and very careful."

Bill Ackman's recent targets

Target Corp.

Pershing has picked up a 9.6-per-cent stake in the U.S. retailer, and wants to talk to management about ways to boost the value of its stock.

McDonald's Corp.

Mr. Ackman pushed the firm to sell off some assets, buy back shares and boost dividends.

Ceridian Corp.

Mr. Ackman's firm holds about 15 per cent of Ceridian, and is fighting a $5.3-billion (U.S.) proposed takeover of the human resources and payroll company.

Wendy's International Inc.

Pershing picked up a stake early in 2005, and Mr. Ackman pressured the company to spin off its Tim Hortons Inc. doughnut chain. Last November, Pershing sold most of its Wendy's shares.

Sears Canada Inc.

Pershing won a big victory in 2006 when it successfully challenging U.S.-based Sears Holdings Corp.'s attempt to take its Canadian division private.

Canadian Tire Corp. Ltd.

Pershing has urged Canadian Tire to sell off pieces of the company, such as its credit card portfolio and non-core real estate.

Richard Blackwell

© 2007 The Globe and Mail. All rights reserved.

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