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Ethan Hill
On Tuesday mornings, William Ackman, the founder and CEO of Pershing Square Capital Management, holds an investment meeting at his office overlooking Central Park in Manhattan. It was at one of these sessions several years ago that Ali Namvar, a senior analyst at his firm, brought up a company that interested his boss. It was called Fortune Brands (FO).
As Namvar described it to Ackman, Fortune Brands was a corporate platypus. At the heart of the Deerfield (Ill.) operation was a spirits division with bourbons such as Jim Beam, Maker's Mark, and Knob Creek. It also had a golf division that sold Titleist putters and drivers. And a "home and security" unit that made Moen faucets and Master Lock padlocks. This combination didn't make sense to Ackman or to anybody else in the room.
Afterward, Ackman read several of the company's annual reports and concluded that this old-fashioned and, more importantly, undervalued conglomerate was a piggy bank in need of a hammer. "We didn't think it was a logical structure," Ackman says. "The question was: When does it makes sense for these to become separate companies?" This was hardly an academic issue. Ackman's hedge fund has $9 billion under management, and he likes to take large positions in companies and agitate, sometimes publicly, for them to adopt his suggestions. He rarely gives up. "He is the most relentlessly stubborn person on the planet," says his friend Whitney Tilson, managing director of T2 Partners, another hedge fund.
Ackman, 44, isn't shy about taking his case to the media, either, if he feels he isn't getting the proper amount of attention. At 6 feet, 3 inches tall and with prematurely gray hair, he looks rather like a congressman. What really frustrates managers of his target companies is how charmingly he goes about his business, which makes it hard for them to paint him as a crank and brush him off.
Ackman waited quietly for five years. In October 2010, with Fortune's share price suffering from the collapse in the housing market, he bought 11 percent of the company's stock. Shortly thereafter, he placed a call to Fortune Brands Chief Executive Officer Bruce Carbonari. "We have some ideas," Ackman told him. "We'd love to meet you."
Ackman is mobbed at investor conferences. Bloggers pore over his investor letters when they appear on the Internet. Ackman denies posting them, but he seems to relish the publicity, which distinguishes him from many others in this secretive business. What some might see as an intrusion, he regards as a useful transparency. Along those lines, Ackman seems to be styling himself as the people's hedge fund manager. In March 2009, in a bid to become one of President Barack Obama's unofficial policy advisers such as BlackRock's (BLK) Larry Fink or Pimco's Bill Gross, he drew up a plan to rescue the country's banks after the financial crisis and offered it to Obama. Nothing came of it, but he was welcomed to the White House by then-National Economic Council director Larry Summers, who respectfully heard him out. "They certainly listened," Ackman says. The White House declined to comment.
As far back as April 2007, Ackman had been telling anyone who would listen that the mortgage market was in trouble; in the end, the crisis was good for him. Pershing Square shorted some of the subprime industry's major players—including mortgage guarantors Freddie Mac (FMCC) and Fannie Mae (FNMA) and bond insurers such as MBIA (MBI) and Ambac (ABK)—and made billions of dollars. More recently, Ackman helped rescue General Growth Properties, the nation's second-largest mall owner, from near-collapse. The salvage effort contributed to his flagship fund's net return of 29 percent in 2010. According to Hedge Fund Research, the industry average was 10 percent. "We like to find investments where our interests are aligned with what's good for America," Ackman says.
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