In today’s Finshots, we tell you why Bill Ackman wants to become Warren Buffett and if he really can.

The Story

This story has five characters ― 

1. William Ackman (better known as Bill Ackman), a billionaire investor. 

2. Pershing Square Capital Management, the hedge fund he kick-started in 2004.

3. Warren Buffett, who needs no introduction.

4. Berkshire Hathaway, the world’s largest holding company (a company that invests in other companies) built by Buffett, and 

5. Howard Hughes Holdings (HHH), a real estate firm where Ackman was Chairman for over a decade, until last year.

And now, Bill Ackman wants to be the next Warren Buffett. 

If that doesn’t make immediate sense, he’s looking to acquire a larger controlling stake in HHH and transform it into a powerhouse holding company. Or, as he puts it, ‘the modern-day Berkshire Hathaway’.

That’s a bold claim. After all, Berkshire Hathaway didn’t become a behemoth overnight. It started as a struggling textile company in New England. But in 1965, Buffett took over, sold off cash-burning assets and reinvested in more promising businesses. One classic example? Fruit of the Loom. The clothing company filed for bankruptcy in 1999, and Buffett patiently waited as its value fell. Then, in 2002, he swooped in to buy it at a whopping 97% discount to its market value, and he eventually revived it into one of the world’s leading apparel brands.

That’s one of the classic pages of the Berkshire Hathaway playbook ― spot undervalued businesses, turn them around and build a holding company shareholders can’t resist.

And that’s exactly what Ackman is trying to do. He wants to raise his stake in HHH from about 37% right now to 48%, take over as CEO, and turn it into a massive conglomerate like Berkshire Hathaway.

But can he really pull this off? Well, we’re not sure.

At first glance, Ackman and Buffett seem like polar opposites, even though both are value investors. Ackman is known as an activist investor, someone who shakes up companies he believes have untapped potential. He’s not afraid to rattle management, push for big changes and force a turnaround to unlock shareholder value fast.

Buffett, on the other hand, is an ardent value investor – the kind who picks undervalued companies that could be great bets for the long term. He infuses capital in them and then steps back patiently to let the company run its own course, trusting that, over time, it will turn itself around.

But interestingly, Buffett wasn’t always the hands-off or the passive investor we know today. Take Berkshire Hathaway itself, which is a great example of Buffett’s activist and aggressive bet. Buffett has called it the dumbest stock he ever bought because he bought it out of spite. Yup. You see, back in 1962, Buffett had already built up a significant stake in Berkshire Hathaway. And he agreed to sell his shares to Seabury Stanton, the company’s then-CEO, at $11.50 per share. But Stanton lowballed him at just $11.375 per share.

That sort of upset Buffett. And instead of selling or walking away, he did the opposite. He started buying more shares, took control of Berkshire Hathaway, and fired Stanton. And while that may feel petty, Buffett himself has called it a $200 billion mistake because he then spent years restructuring the failing textile company before turning it into the powerhouse it is today.

And that kind of aggressive, high-stakes activism sounds a lot like Bill Ackman today.

Take Herbalife, for example. Ackman had once slammed it as a pyramid scheme and shorted its stock (which means selling shares he didn’t own, expecting the price to drop). And at first, the stock did fall.

But then it soared. The end result was that Ackman was forced to exit his position by swallowing close to $1 billion loss in the process.

Another interesting thing here is that Buffett didn’t stay an aggressive investor forever. He evolved. Once he took control of Berkshire Hathaway, he shifted towards a more passive, long-term approach.

And guess what? Ackman has been saying he wants to do the same. In 2022, he declared that he was done with activist short-selling and had moved on to a more Buffett-like, long-term investing style.

But does that mean Ackman will succeed? 

Not really. Having similar trajectories doesn’t make Ackman the next Buffett or capable of turning HHH into the next Berkshire Hathaway. And we’ve got three solid reasons why.

For one, sure, HHH is undervalued. But it isn’t a lost cause. It’s far from a struggling company that needs a saviour. Its stock has no doubt tumbled quite a bit from its 52-week high, but investors know how valuable it could be. 

Take Pershing Square’s buyout offer for HHH. Ackman initially offered $85 per share, but Pershing’s shareholders didn’t bite. They believe HHH is worth closer to $120 per share. So Ackman upped his offer to $90, which is a premium over its current market price of $73. And that makes it look more like a desperate chase rather than a strategic move.

Think about it. The company is sitting on massive swathes of undeveloped land, part of which will also be used to house a huge movie studio in partnership with Sony, a project set to churn out films over the next decade. So when you factor in its future potential, HHH is probably worth more than its current market price per share. And that’s not what Buffett would consider a discounted, value investing bet.

Two, if Ackman truly believes in turning HHH into the next Berkshire Hathaway, why is he offering cash to selling shareholders? Why not let investors of HHH own a piece of the new merged entity instead? That would signal that he believes in his plan and that shareholders will make money alongside him. He can use cash, along with Pershing Square’s fund, to build HHH into the powerhouse he envisions. But he isn’t doing that, and that raises a big question — is he fully convinced of his own plan?

And finally, here’s something we haven’t told you. Pershing Square plans to charge HHH a 1.5% management fee to “manage its funds better”.

Hmm… 

That’s odd because instead of injecting capital into the company, it’s actually taking money out.

Now, you could argue that Buffett did something similar with Berkshire Hathaway. He used its capital to diversify and grow the business.

But there’s a big difference. Berkshire Hathaway was a dying textile company. Demand for its products was dwindling and pumping more money into it made little sense. 

HHH, on the other hand, is a real estate company. Real estate isn’t dead. If anything, its potential is huge. And growth needs more capital, not less.

So at this point, it feels like Ackman is chasing what he calls an undervalued gem, but the math just doesn’t add up. And just saying that he can build the next Berkshire Hathaway doesn’t magically make him Warren Buffett, no?

So yeah, for now, we’ll wait and see if Ackman proves us wrong.

Until then…

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