2015Q2 Pershing Square Holdings, LTD., Q2 2015 Earnings Call, Aug 10, 2015

CONTENTS
CALL PARTICIPANTS
PRESENTATION
QUESTION AND ANSWER
Pershing Square Holdings, Ltd.
ENXTAM:PSH
FQ2 2015 Earnings Call Transcripts

Monday, August 10, 2015 3:00 PM GMT
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S&P Capital IQ Estimates**
**Estimates Data not available.
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COPYRIGHT 2015, S&P CAPITAL IQ, A PART OF MCGRAW HILL FINANCIAL.
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PERSHING SQUARE HOLDINGS, LTD. FQ2 2015 EARNINGS CALL AUG 10, 2015
Call Participants
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EXECUTIVES
Ali Namvar
Senior Analyst
Brian Welch
Charles Korn
David Klafter
Jordan Rubin
Paul C. Hilal
Partner
Ryan Israel
Ryan Israel
Director, Member of Audit
Committee, Member of
Compensation Committee and
Member of Nominating & Policies
Committee
William Albert Ackman
Chief Executive Officer and
Portfolio Manager
William F. Doyle
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Copyright 2014, S&P Capital IQ, a part of McGraw Hill Financial.
Presentation
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Operator
Good morning, everyone, and welcome to the Pershing Square Capital Management Quarterly Call. I will
now turn the call over to Bill Ackman, Founder and CEO of Pershing Square Capital Management. Please
begin.
Chief Executive Officer and Portfolio Manager
Welcome to the call. Just the legal disclaimer, we distributed to the callers but you could also probably find
a copy on our website if you'd like to give it a read. With respect to Q&A, please email your questions to
ir@persq.com. I will say we've gotten a remarkable number of questions, and we'll do our best to answer
them. So maybe don't send us too many more questions, I don't think we'll get much chance to answer
them. We're going to have a replay for the call, it will be available through August 24, and you can email
ir@persq.com if you want to get access to the replay.
Okay, let me jump to some basic statistics, and then we will cover the portfolio, and then get to Q&A.
In terms of performance, and these numbers are reported publicly with respect to our public entity
and privately to our investors, but quarter-to-date, the funds are up somewhere between 4.76% and
5.63%. The lower -- the higher performance relates to the lower fees of our publicly traded entity. We are
fully invested, as we speak, with net unencumbered cash being either slightly positive or as much as a
couple of hundred basis points negative as of the present day. The big contributors for the quarter, in the
second quarter, Valeant contributed approximately 250 basis points; Nomad, 200 basis points; Mondelez,
140 basis points; Zoetis, 50 basis points, for a total of 630, 640 basis points of contribution. Offsetting
those contributions during the quarter, again this is through June 30, Herbalife, negative contribution
of 220 basis points; Canadian Pacific, negative 180 basis points; Air Products, 120, 130 basis points;
Howard Hughes, 70 basis points negative; and 6 basis points slightly negative of Restaurant Brands. The
funds today are fully invested with a short position approximated 6% to 7% of capital taking each of the
present.
In terms of portfolio, why don't we start with Mondelez. This is a new investment, a substantial one. We
today hold a position with a small amount of common stock at a large amount of forward contracts that
we intend to exercise once we get HSR approval. And then we have some deep in the money longer-term
call options that we don't currently intend to exercise at today's date but may exercise in the future.
And with that, I'll turn it over to Ali Namvar. Ali, why don't you take us through Mondelez?
Ali Namvar
Senior Analyst
Thanks, Bill. So Mondelez is one of the world's largest snack companies with a market cap of about $75
billion, and it has great stable of brands that you know and love, brands like Cadbury, Trident Oreo,
Nabisco. Mondelez is really a new company. It was born out of the breakup of Kraft in 2012. We have
an ownership stake of approximately 7.5% in Mondelez. Now Pershing Square has a long history with
this company. We first invested in Cadbury in 2007, and that's after we'd done a lot of work on the
food industry in general and concluded that snacks and confectionery are wonderful categories, they're
secularly advantaged and businesses that we'd like to own. Then we became shareholders of Kraft when
Kraft was trying to acquire Cadbury in a hostile takeover, and we publicly supported Kraft's acquisition of
Cadbury. And then we were shareholders of Mondelez post the break up of Kraft. And so we've had a long
history with the company. We know the business very well and we've developed a constructive relationship
with Mondelez's CEO, Irene Rosenfeld.
So if you think about Mondelez, this is a classic Pershing Square investment. It's highly -- very highquality, it's very simple predictable business. As I said before, snacks and confectionery are wonderful
categories because they typically have very high profit margins. The brands at Mondelez has this fantastic
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moats around it, and business has a wonderful opportunity for growth in the emerging markets, where if
you look at the per capita consumption of snacks, it's -- fractions of what it is, in the developed world. So
great growth opportunity at Mondelez. And, finally and very importantly, despite Mondelez having these
wonderful brands and participating in this great category, Mondelez has the lowest margin in its peer set,
and we think Mondelez has, by far and away, the greatest opportunity among its peers.
So this is all good. You may ask yourself, well, why now? Why are you back in? And I'd like to say that
we're always watching great businesses and waiting for the right time to invest. And we think the right
time to invest again in Mondelez is now. And let me explain why. First, Mondelez has had a critical
inflection point, in that they're just beginning to see margins start to improve. And that's because the
company's announced a large cost savings program and has invested quite a lot in its infrastructure to
improve its supply chain. So we think the Mondelez shareholders are going to benefit from some -- many
of these actions management has taken. Secondly and very importantly, we think the whole industry
is under significant change, and part of that change is being driven by 3G and what 3G was able to
accomplish when they acquired Heinz.
Now under 3G's management philosophy and its organizational structure that it put on Heinz, Heinz was
able to reach levels of profitability that far exceed any benchmark in the industry today. And so it's safe to
say that 3G is setting new levels of benchmark for efficiency, organizational structure and profitability. And
we think that all the leaders of the food industry are looking at this and saying, "Wow, we need to evolve,
and the old ways of doing business won't pass muster. We need to evolve to grow." And so we thought
to ourselves, we'd love to be able to participate as investors in this very interesting dynamic. And so we
thought the best way to participate would be to own the company that has what we think are some of
the best brands, that has -- really participates in the highest quality categories in the industry, that has
fantastic growth, and most importantly, has by far and away, the biggest cost-saving opportunity in the
sector. That company would be Mondelez. And when you apply the new benchmarks to Mondelez, well,
the opportunity for Mondelez shareholders is just staggering. And so really excited to be shareholders of
Mondelez, and please stay tuned.
Thank you, Ali. Next, Valeant. Jordan, why don't you bring us up-to-date on what's transpired in the last
quarter.
Jordan Rubin
Sure, so on April 1, Valeant closed the Salix acquisition, the largest acquisition in the company's history.
Results so far have been fantastic. The company's already achieved $500 million in cost synergies,
financial results have exceeded budget, and management has increased full year sales expectations for
the sale of its product portfolio.
On July 23, Valeant management presented its second quarter financial results. Both sales and earnings
results exceeded management and investor expectations. Organic same-store sales growth grew 19%
in the quarter. This marks the fourth straight consecutive quarter of at least 15% growth at Valeant.
This quarter, growth was led by over 30% growth in Valeant's U.S. division. Following this strong
result, management has increased full year sales and range expectations for Valeant. Also on July 23,
management reviewed business development activity at the company since Mike Pearson joined as CEO in
2008. Their review data comprising of over $40 billion of capital invested in acquisitions across over 140
transactions, and the results are nothing short of fantastic. Operating profits at acquired companies has
exceeded budget by 18%. This strong operating performance, when combined with disciplined purchase
prices, has resulted in an unlevered annualized 37% rate of return on capital invested in acquisitions. We
believe that Valeant will continue to be able to invest capital in acquisitions at a high rate of return for
some time going forward. On July 1, the company hired a new CFO, Rob Rosiello. Rob joins the company
from McKinsey, where he most recently led McKinsey's M&A consulting practice. Former CFO Howard
Schiller will remain with the company as a Director.
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So despite an over 50% increase in Valeant shares since we first acquired stock in early 2015, we
still believe that the stock is undervalued. And you can find a full review of our Valeant thesis and the
presentation that Bill gave at the Ira Sohn Investment Conference in early May.
Thanks, Jordan. Just, again, the quarterly performance, for what it's worth, Mondelez was up 14.4% in the
second quarter; Valeant, up 11.8%; Air Products, down 9% during the quarter, obviously, popped back up
on the earnings announcement. So Brian, why don't you update us on the quarter?
Brian Welch
Sure. So on July 30, Air Products announced its fiscal Q3 results which were nothing short of impressive.
The company's transformation under its new CEO, Seifi Ghasemi, is really starting to take hold, and the
results are proving as much. For the quarter, underlying revenue growth was 4%. EBIT increased 17% on
a 380 basis point increase in margins to 19.5%, and EPS increased 13% during the quarter. This was all
despite meaningful foreign exchange headwinds. Excluding these headwinds, EPS growth would've been
21%. The company is improving its return on capital, and its unlevered returns on capital have increased
130 basis points to just under 11%, again, fantastic results.
As I mentioned, underlying growth for the business was up 4%. This was driven by 3% volume increases
and 1% increases in price. Again, a great and stable result despite economic uncertainty. The 3% volume
increases were principally driven by new plants coming on stream in Asia. We think these plants coming
on stream and contributing meaningful free cash flow to the business is a wonderful development, as the
company has been spending billions of dollars a year in growth CapEx and most investors are not giving
full credit for this CapEx coming on stream and producing meaningful free cash flow and intrinsic value
for the company over the coming years. We think of this CapEx as sort of a spring-loaded opportunity for
growth in free cash flow that we're very excited about.
Operating margins were up 380 basis points across the business to 19.5% for the quarter. This is the
highest quarterly operating margin in the last 25 years for the company. Now what's important to note
is that the company has shown great progress to date, but much of the improvements over the recent
quarters had really been coming from the company's non-core materials technology business. While these
were great and were improving the earnings power and free cash flow of the business, the vast majority of
the company's structural deficiency and performance relative to Praxair occurred in their industrial gases
business. And this was really the first quarter that a lot of the company's improvements to the underlying
business started to show through in the financials. The operating margins for the gases business were up
300 basis points during the quarter to about 20% across the industrial gas business. Only 100 basis points
of this improvement was due to the pass through effects of energy, which basically reduced revenue while
having very little impact on EBIT dollars, thus inflating margins.
Constant currency operating income growth in the gases business was 17%. And the gases business
represents over 75% of Air Products' consolidated EBIT and free cash flow, and so we think closing this
performance gap to Praxair on the gas business is going to lead to meaningful intrinsic value over time
for shareholders. The company's non-core materials technology business continued to post spectacular
results. Underlying revenue growth was up 7% in the quarter. Margins were up 600 basis points to 24%.
The combination of these 2 variables led to EBIT growth of 36% in the quarter. The head of this division,
Guillermo Novo, highlighted that the business leaders continue to work very hard to make this business
more independent within the Air Products corporate infrastructure, and Seifi confirmed in the Q&A session
of the call that this business remains non-core, and that they're currently evaluating options for this
business. We expect the business to be spun out in an accretive transaction in the coming quarters.
For the first time since the transformation was announced, Seifi really laid out sort of a progression and
a definitive time line for closing the gap to its competitor Praxair. As you will recall, the company has
a $600 million cost-savings opportunity, and this is roughly split $300 million from corporate and G&A
cuts and $300 million from operational productivity. The $300 million that are coming from corporate
and SG&A cuts are expected to be fully run rate by Q2 of the 2016 fiscal year. The company has already
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eliminated 1,500 positions, most of which are coming out of the corporate headquarters, but it takes
several quarters for many of these cuts to be fully reflected in the P&L. And so there's the delay, if you
will, in the visible progress that the company has been making, and that is just now starting to come
through in the financials. As far as the operational productivity improvements, Seifi announced that the
full $300 million of operational productivity will be captured in the financials over the coming 4 years at
roughly a linear rate.
So in conclusion, the company is well on its way to closing the gap to Praxair. This is leading to really
spectacular results for the business, and we continue to be very excited about it is a core holding within
our portfolio.
Thank you, Brian. Next, CP, stock declined 13.6% during the quarter. Why? Why don't you update us on
the quarter, announce [ph] subsequent. Thank you.
Paul C. Hilal
Partner
Thank you, Bill. The economic slowdown in North America has hit the rail sector broadly. Pretty much
every rail stock was down double digits over the quarter, and CP was no exception. But what we learned
from CP in its second quarter earnings report is that it's operational transformation plan continues so
robustly that despite the headwinds, the volume headwinds from the slower economy, CP was able to
expand its margins pretty meaningfully. The slow down in the -- I'm going to get to the causes of the
slow down, Canada versus U.S., but something that should be recognized is that for railroads, a change in
growth rate has an amplified effect because of supply chain stocking and de-stocking effects. This affected
CP as it did other rails. That's why the share price move of these stocks was so much greater than one
would think from the changes in the growth rates. CP's volumes declined about 6% in the quarter, and
despite this, they were nevertheless able to show 120 basis point margin expansion from -- or operating
ratio improving from 65.1% to 63.9% on a fully adjusted basis. And this is very encouraging because it
underscores the robustness of the team's execution but also it underscores the substantial opportunity
that remains ahead for the company as it marches towards the high 50s operating ratio levels that they
discussed -- that management discussed on the Q2 call.
Looking at volumes more closely. Canadian volumes actually held up fairly well over the quarter. By
commodity type, grain, coal, potash, fertilizer, volumes were either flat or even slightly off. This kind of
counterintuitive result is because the Canadian commodities broadly are lower cost and higher quality
than a lot of the offerings from elsewhere in the world. So even in a soft commodity demand environment,
Canadian volumes hold up relatively well. Furthermore, because Canadians economy is so much driven by
these natural resources, the decline in the Canadian dollar that inevitably follows soft commodity markets
serves to make the Canadian offerings more competitive in the global markets, and therefore, buffers the
effect of commodity weakness. The U.S. was a different story. On an FX adjusted revenue basis, crude was
down 36% year-over-year, and similarly, U.S. grain was down 18%. The U.S. grain story underscores the
unusual supply chain stocking and de-stocking effects that can add noise to railroad earnings. Because
the U.S. dollar strengthened year-over-year for the quarter, U.S. farmers were reluctant to sell their -- to
export their grains at what were effectively lower prices. They therefore have been stockpiling. The grain
silos have been filling up, the warehouses have been filling up, and shipping volumes have correspondingly
declined. Because these storage facilities are largely at peak capacity, we're going to start seeing these
stored grains shipping. The farmers would much rather ship these grains at somewhat lower than hoped
for prices than see the grain rot in these storage facilities. So this volume we expect will come back later
in the year.
The 6% volume decline over the quarter did not translate to a 6% revenue decline. This is because
Canadian Pacific continues to improve service to levels that it's shippers have never before seen, and
we're talking about the train speed and the reliability of trains arriving on time at their destination, we're
also talking about car availability. Because of this improved service, Canadian Pacific was able to increase
prices 300 basis points year-over-year. That 300-basis point -- sorry, the effect of increased prices was to
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buffer the revenue line by about 300 basis points in the quarter. That's the principal reason why despite
a 6% volume decline, revenues in the quarter were down only 2%. As discussed earlier, this 2% revenue
decline headwind was nevertheless overcome by operational improvements that translated ultimately to
a 120 basis point adjusted operating ratio improvement. If you eliminate the adjustments, the reported
operating ratio improvement was somewhat north of 400 basis points.
Earnings for the quarter on an adjusted basis were $2.45 a share, up about 16% year-over-year. About
half of that 16% improvement though was driven by exchange, by currency changes. On a full year basis,
Canadian Pacific lowered its guidance broadly consistently with what the sell side had come to expect over
the course of the quarter. Revenue guidance came down to 2% or 3% for the full year versus an originally
hoped for 7% to 8%, and full year EPS came in between -- guidance came in between $10 and $10.40
or up 18% to 22% for the year. That compares with a target of a 25% or greater EPS improvement that
management had targeted when they initially gave guidance for the year.
Longer term, looking at the company's 2018 targets, the company has realized over the past 9 months
that its opportunities for efficiencies are even greater than they had anticipated when they initially -- when
they initiated their 2018 target back in November. As a consequence, management believes that even in a
soft revenue environment, where 2018 revenues come in close to $9 billion, it expects to hit an operating
ratio of between 56% and 57%. This compares with a 60% operating ratio target it had announced last
fall under a $10 billion revenue scenario. The company continue to execute on the 6% share repurchase
authorization issued late in March of this past year and repurchased about 3.1 million shares in the quarter
totaling about 1.9% of the company's total shares outstanding.
That's the quantitative report. On a qualitative basis, late in the second quarter, the company announced
that Mark Erceg was joining as the company's Executive Vice President and Chief Financial Officer. He is
coming from a 6-year run at Masonite, where he performed extremely strongly, and that was after an 18year career at Procter & Gamble, where he also performed extremely strongly. Both management and the
board are extremely pleased with the meaningful contributions Mark has made so far to the company.
Thank you, Paul. One interesting sort of a question, stock seemed to be valued on the basis of an
expectation for the next year's earnings and the multiple that's assigned. How much impact on the
intrinsic value of CP takes place when their growth rate in a year goes from 6% to 10% or from 10% to
6%? How material is that in the life of the business or how do you think about that?
Paul C. Hilal
Partner
Well, importantly, in the case of CP, the company's best judgment as articulated in the Q2 call, was that
their original expectations for 2018 revenue of $10 billion was going to be lowered to about $9 billion. In
the case of -- for another railroad, that would've had a more dramatic impact on what one would expect
to be the intrinsic value of the railroad. But in the case of CP, because of discoveries they've made and
innovations that they've conceived in the past year, the efficiency improvements over that period will
largely mitigate -- not completely, but largely mitigate what would otherwise have happened. So EBIT
dollars expected for 2018 are only 8% lower than one might have expected versus a larger number that
you'd expect if it gets to that, and that pretty means you can have more room in it.
Okay, interesting. Okay. Zoetis, Jordan -- or Bill. Bill is going to do Zoetis.
William F. Doyle
Yes, sure. So investors will recall that Zoetis was formerly the Animal Health business of Pfizer. It was
spun off 2 years ago. It's an incredibly diverse global business, competing in 2 segments, the companion
animal or vet segment and the livestock segment. And it has a dominant position in virtually every species
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in every geography. In short, the company had a great quarter. They grew 11% in operational revenue,
excluding the effects of FX, and 20% growth in operational adjusted net income, again, excluding FX. With
FX, revenue grew 1%, so even with the global business, they manage to grow in the environment. And
adjusted net income, including FX, grew 14%. This is an example of an important trend that management
believes will continue indefinitely, and that is the ability to grow revenue at rates that are above the
intrinsic growth rate of the animal medicine business, but to grow net income at a much faster rate,
leveraging the infrastructure that they have in place. The company also announced continued productivity
from its industry-leading R&D effort. Importantly, this quarter, they announced that the USDA has granted
conditional license for a first of its kind antibody therapy against interleukin-31. This is a medicine for dogs
that fights atopic dermatitis. This is essentially itchy dogs and it complements a groundbreaking product
APOQUEL, that they launched last year. APOQUEL is an oral medicine. The IL31 is an injectable medicine.
And these 2 products position Zoetis to essentially dominate the veterinary dermatology space in the
coming years.
Additionally, in May, the company announced a major restructuring program. And this was part of our
initial thesis that after spinning out from Pfizer, there would be a period of time when the company needed
to focus and establish on developing its infrastructure independent of Pfizer. But once that infrastructure
was in place, that there'd be significant opportunity for efficiency improvements. Those improvements are
underway and include a restructuring of the business from 4 major global units into 2, a U.S. unit and an
international unit. The reduction of about 40% of SKUs and the reorganization of the commercial footprint
globally to put more resources in the markets where they are justified and to change the mix of direct and
distribution in some of the smaller markets. We expect this program to improve operating margins from
25% in '14 to 35% -- 34% to 35% in '17.
And when you say we, Bill, this to the company's guidance?
William F. Doyle
This is the company's guidance, that's right. I am on the board of this company, so I use we in this
particular case. But this is the company's guidance. And furthermore, with the benefits of the operational
program, additional announced benefits in manufacturing and supply chain and further leverage of the
infrastructure which we, i.e. management, expects margin to improve to 40% by 2020.
We are grateful for that presentation, Bill. Thank you. Zoetis was up 4.3% for the quarter. QSR,
Restaurant Brands, Ryan, down slightly for the quarter.
Ryan Israel
So QSR reported results a couple of weeks ago and they were fantastic, led by very good earnings growth.
This really underpins our thesis that the company, both because of its internal opportunities at Burger
King brand and the transformational acquisition of Tim Hortons, will achieve a high rate of growth over the
coming years.
I think there are 2 areas in the quarter that are worth focusing on. The first is the robust same-store
sales environment at Burger King's U.S. business and the second is the continued business operational
improvements and efficiencies at Tim Hortons. In terms of same-store sales, the company delivered an
8% growth in same-store sales in its Burger King U.S. business, which is very fantastic. So the industryleading number by a multiple relative to its closest peers, is actually the best result in more than a decade
for Burger King. The company attributes this to a variety of factors. So first, modernization of the store
footprint. Now about 40% of the Burger Kings around the U.S. are remodeled. Second is continued
improvement in the limited time offerings such as chicken fries. Third, an improvement in the value menu.
And fourthly, continued improvement in service feed time, which is getting the food more accurately and
more quickly to the end customer, which is helping bring back customers more frequently. So a lot of
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the things that 3G and QSR had been working on the last several years are finally bearing fruit. This was
actually the second quarter though where same-store sales were at industry-leading levels. And it looks
like Burger King is finally starting to close the gap with its nearest peers, Wendy's and McDonald's. To put
that in perspective, Burger King has sales per store of about $1.3 million, Wendy's is about $1.5 million
and McDonald's is slightly under $2.5 million. So if Burger King can continue these improvements, they
will be substantial driver to earnings growth in the future.
In terms of the second point, which is the operational efficiency at Tim Hortons, the business continues
to improve under 3G and QSR's ownership. The operational cost for -- the overhead costs at Tim Hortons
were down 30% relative to last year's quarter, and QSR is now starting to make improvements in the
overall expense base and Tim Hortons core businesses as well. I think what's important to point out here
is not only are they reducing costs and making the business more efficient at Tim Hortons, but they're
doing that while they continue to allow Tim Hortons to grow at a very high-level in terms of its revenue.
Same-store sales continued to be very robust at Tim Hortons and the net unit growth story remains intact
as Tim Hortons continues to add restaurants in the U.S., Canada and around the world.
So summing it all up. These improvements in same-store sales at Burger King U.S. and then the
operational efficiencies at Tim's are leading to very strong earnings growth. Adjusted EBITDA was up 7%
for the quarter and earnings growth, because of the leveraged nature of the business, is up about 30%.
And this is in spite of a strengthening dollar, which caused more than a 10 percentage point headwind to
EBITDA growth and earnings.
There's an article in a journal this morning that talked about 3G really -- 3G businesses being good at
controlling costs but not particularly good at maintaining or even growing market share. I think the
Burger King story is pretty instructive in that, and we think these guys actually don't get enough credit
in some sense for their ability to grow business. At Burger King, they've been involved now for, I guess,
approaching 5 years. And the company has really been in a dramatic turnaround both in the same-store
sales performance as well as the acceleration of the business in terms of unit growth. So we're very happy
shareholders.
Jordan Rubin
The same can be said at Valeant, I think this last quarter demonstrates that Valeant, similar business
model, they're fantastic on costs, people forget that they're not just great at cutting costs and having
capital, they've grown their business organically 15% year-over-year for the last 4 quarters.
No, I think it's a -- other players in the industry tend to knock "cost-cutters" because the assumption is
if you're not investing, you're not building a business. And I think Burger King is a great example and
Valeant is a great example. Valeant invested an enormous amount of capital. They just invested and
earn very high returns in that capital. And these are both standalone growth stories with the material
benefit of their ability to deploy capital in growth. So now what's interesting about Restaurant Brands is -and why it's one of the -- we think one of the best businesses in the world is the growth that's driven at
Burger King and Tim Hortons is being driven by capital being put up largely by third parties. So the best
businesses in the world, in my opinion, are onces we've been on royalty on, growing royalty, where you
don't need to spend capital to make the royalty grow. And so this is really, in some ways, arguably one of
the best businesses we own.
Howard Hughes has not yet announced second quarter earnings. I expect those earnings will come
out very kind of early this week. As a result, I really can't comment to any great extent on earnings,
obviously. We don't really look at the business of Howard Hughes based on quarterly earnings or even
quarterly loss sales. We think of it is a collection of assets that management is taking down the path to
development and turning into cash ultimately. And management continues to make very material progress
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with both building new assets, selling condominium units, selling residential land, and it's really a superb
team. We'll comment more in the next call about how we'll be able to organize next calls, what happens
after the earnings release.
With that, Platform Specialty Products, Ryan, do you want to just give -- I guess, the update is they
announced an acquisition, and we're not allowed to comment as a result of this. So we're going to skip
Platform for this call and hopefully get back to it for the next call.
Brian, if you could update us. Nomad was up 93% for the quarter, so I guess, that was our best performer,
and we made our investment basically at the beginning of the quarter. So why don't you tell us -- let me
just make a brief comment here. So Nomad is a cash shell that Martin Franklin and Noam Gottesman
launched a little over a year ago. We did not invest at that time and -- but we've maintained a very
good relationship with Martin. And we're always available when talented CEOs and partners approach us
for opportunities, and the identified opportunity was really too large for Nomad. They came to us early
on, on a confidential basis, and then we -- actually Brian Welch from our team spent a fair amount of
time helping due diligence that acquisition, and we made a large investment in Nomad, which was quite
timely because we were able to make that investment contemporaneous with the announcement of that
transaction. So why don't you update us on Nomad and that deal, Brian?
Brian Welch
Sure, thanks, Bill. So Nomad, as Bill mentioned, was a special-purpose acquisition company that was
cosponsored by Martin Franklin and Noam Gottesman. At that time -- Gottesman. It was a $500 million
entity that was effectively a cash shell that was raised in the spring of 2014. About 1 year after the initial
entity was raised, Martin approached us and said that they were considering a $2.8 billion purchase of
Iglo Group, which I'll talk a little bit about. But that in conjunction with this acquisition, they would be
needing to raise equity and they offered us an opportunity to become an anchor investor in the equity
raise in conjunction with the Iglo Group deal. Now obviously, we've known Martin for a number of years.
Bill has had a relationship with him going back quite sometime. But we as a firm have been great admirers
of Martin's track record, building value in multiple different industries through a combination of organic
growth and inorganic intelligent capital allocation. You can actually see some of Martin's track record
laid out in our Ira Sohn presentation on platform companies, but he's had a very successful track record
over the course of decades, first, with Benson Eyecare, next, with Jarden Corp., where he produced over
forty-five-fold returns for investors over nearly 1.5 decades, and most recently with Platform Specialty
Products, where we're obviously an anchor shareholder as well and have had great success thus far. So
we're obviously very excited to conduct diligence on Iglo and to evaluate the opportunity. After conducting
our diligence, we enthusiastically subscribed to $350 million during the company's private placement
of shares in conjunction with the Iglo transaction, which we committed to in April, but as a point of
clarification, actually funded in June just before the acquisition closed. This amounted to a 22% ownership
stake in Nomad. And in conjunction with this investment, I joined the Board of Directors on June 1 as the
transaction closed.
Now Iglo is the leading branded frozen food company in Europe. The company has about EUR 1.5 billion
in sales. And it is a very stable business with incredible brand equity, high EBITDA margins of about 20%,
and it is a very cash-generative business that we think has meaningful opportunities for organic growth
and will provide a great base as Nomad looks to consolidate the packaged foods sector over time. As I
mentioned, the business has a dominant position within European frozen foods. In fact, we are 2.2x the
size of the next largest competitor. The company has great geographic exposure with leading positions in
the U.K., Italy and Germany. And from a product perspective, our exposure is principally to fish, frozen
vegetables and other lean proteins, which we expect will have a lot of secular support from increasingly
health conscious consumer over time. Historically, growth for the business has been essentially flat, but
the team sees meaningful opportunity to take the company's iconic brand names and extend them to
other frozen food categories, with the example cited being breakfast offerings, which the company is
currently in the process of rolling out. So we think there's some interesting organic growth opportunities
for the business.
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The Iglo purchase price was one that was pretty attractive. The $2.8 billion purchase price represented
just about 8.5x EBITDA. Now what's important to note is this business has very modest CapEx needs, just
under 2% of sales, and it also has a true cash tax rate that is about 21%. So when you think about 8.5x
EBITDA multiple, do not compare that to U.S. assets that paid much higher taxes or to capital-intensive
businesses that require meaningful capital to run those businesses. Given the low cash tax rate and the
low CapEx needs, our purchase price represented about 12x unlevered free cash flow. With about 4 turns
of leverage on the business, this sets up for a levered free cash flow multiple of just over 8x at our initial
purchase price. Now obviously, that's all very attractive, but our interest in the business is not solely based
on this one asset. We think there's meaningful opportunity to drive substantial platform value in the food
industry over time. The packaged foods industry is a $2.4 billion sales industry, and it's a very fragmented
industry. Certain categories like frozen...
The category is just at $2.4 billion?
Brian Welch
$2.4 trillion, I'm sorry.
$2.4 billion, we're in trouble.
Brian Welch
$2.4 trillion industry that is quite fragmented. Certain categories like frozen food, the top 10 players
in the U.S. as an example, are only 24% of industry sales. So there's great opportunity to consolidate
assets over time. Obviously, with the presence of 3G in various different activist investors in the space
such as our involvement in Mondelez and other activists involved in companies like ConAgra is creating
a lot of activity within the space and we think may lead to very interesting M&A opportunities for a
business like Nomad. So look, in short, we think this is an attractive base business in a very attractive
industry with meaningful opportunity to add value over time via inorganic and intelligent capital allocation.
The company has an international territorial tax domicile which we think would be very valuable as we
acquire international assets over time. We built a great management team led by our recent CEO hire,
Stefan Descheemaeker, who has a background at AB InBev. And he's trained, if you will, under the 3G
management team and brings a lot of skill in both operational productivity and M&A to the team.
Thank you, Brian. David Klafter, do you want to give us a quick update on Fannie and Freddie from a legal
point of view?
David Klafter
Thanks, Bill. As everyone will remember, the shareholders are challenging what's been called the net
worth sweep. It was put in place in August of 2012 and under it, the Treasury Department takes every
dollar of positive net worth from Fannie and Freddie every quarter. As long as the net worth sweep
is in place, the companies will be unable to build any capital and, therefore, they'll be unable to exit
conservatorship. Conservatorship is supposed to be a temporary arrangement which puts the companies
into a safe and solvent condition, allows them to rehabilitate and exit conservatorship. At this point, next
month, they will be -- it will be 7 years since the conservatorship was created with no end in sight.
Shareholders are suing in 2 different courts. In the Court of Federal Claims, shareholders are challenging
the net worth sweep as an unconstitutional taking without compensation because if the net worth
sweep stays in effect, the securities will be worth effectively 0. And then in the district court, the
shareholders are challenging the net worth sweep under the relevant statutes saying that they are
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arbitrary and capricious and they exceed the authority of FHFA and the Treasury Department. In the
Court of Federal claims, the cases are proceeding. The plaintiffs, the shareholders, are taking discovery
from the government, which includes documents and oral testimony and depositions. We do not yet have
access, though we're getting an access to the depositions and the documents. And from what we can see
from Fairholme papers, Fairholme is the lead plaintiff, it sounds like they are finding evidence that the
government, in fact, knew that Fannie and Freddie were turning a corner and becoming profitable at the
time the net worth sweep was put in place.
In the District Court in September of last year, the judge dismissed the statutory claims, and those
claims are now on appeal to the D.C. Circuit Court. The plaintiffs have filed their brief, which we think
is a very stong one, seeking to overturn the decision, among other things saying that the court did not
even evaluate the administrative record. There were amici, that is friend of the court briefs, filed from 8
different parties including us. A couple of them I think are noteworthy. William Isaac, who is the former
FTC Chairman, submitted a brief where he explained that...
FDIC.
David Klafter
Sorry, FDIC Chairman, submitted a brief explaining that he had overseen hundreds of conservatorship and
receiverships of banks during the S&L crisis. And in his understanding of banking law, the net worth sweep
would overturn 80 years of understanding of how the conservatorship of a bank is supposed to work,
mainly to rehabilitate and put the bank back in business. He also suggests that if the net worth sweep is
upheld, than the financing market could dry up for banks and especially when they're getting in trouble
and they're looking for new capital because if the net worth sweep is upheld, new sources of capital would
have to fear that their capital could be wiped out by the government. Tim Howard, a former CFO of Fannie
Mae, submitted a brief explaining that the entire need for treasury investment in Fannie and Freddie was
because of noncash accounting decisions that were forced upon Fannie and Freddie by FHFA. Treasury put
in $190 billion and then, shortly after the net worth sweep was enacted, the noncash reductions to income
were reversed causing the companies to have noncash income which then turned into cash that was taken
out by the treasury.
So we remain still hopeful that the lawsuits will be successful. The latest news we heard last week is
that the D.C. circuit, to which Fairholme submitted some of their papers and deposition transcripts, has
suspended their briefing schedule for the appeal. We think this is so that the court will have a chance to
review the new evidence which we think should be good for the plaintiffs.
I guess I'm not hopeful, I'm confident. But no, I thought it was actually a very significant number of
developments during the quarter, very positive for Fannie and Freddie, not reflected in the share price
but we think significant. Herbalife, Charles, why don't you update us on the financial performance of the
business during the quarter.
Charles Korn
Sure, so I'd like to report our Q2 financial results on August...
They're our second best performing stock in the portfolio, stock was up 28% for the quarter. Go ahead,
Charles.
Charles Korn
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They reported Q2 results on August 5 at the close. The company reported net sales declines in every
individually reported country and geographic segment with the exclusion of China, which notably increased
39% year-over-year. So on a consolidated basis, net sales declined 11%. And if you back out China,
the rest of the business essentially declined 19%. On a currency adjusted basis, most markets similarly
declined, including certain mature markets such as South Korea, which declined 30% year-over-year on
a currency adjusted basis and the United Kingdom, which was previously a growth market, that declined
21% year-over-year. And on a consolidated basis, currency adjusted net sales were -- grew 1% with the
exclusion of Venezuela.
Turning to profitability, Herbalife reported their company defined adjusted net income of $106 million in
the quarter, which was down 25% year-over-year. That basic earnings translated into adjusted EPS of
$1.24, which means what was essentially management's lower guidance levels. And the guidance now
calls -- 2015 guidance now calls for a range of $4.50 to $4.70 which, at the midpoint, is down 22% yearover-year or 6% on a currency adjusted basis, excluding Venezuela. I think the key story in the quarter
was China which continues to be the core driver of growth for this business. China surpassed the U.S. as
Herbalife's largest market on the net sales basis in the quarter and we believe this has been intrinsically
a lower quality base of business. We've previously explained why we believe Herbalife's China business
violates local laws. If you recall, China had some of the strictest anti-MLM provisions in the world. We
previously outlined this...
In China, it's not just illegal to run a permit scheme, it's also illegal to run a multilevel marketing company
and we believe that Herbalife's business in China is run precisely the same way it's run here, using
different nomenclature. And that we think is a provable fact and we hopefully will make some progress in
that regard. Go ahead, Charles.
Charles Korn
We detailed our research findings in our March 2014 presentation, which is available on our Facts About
Herbalife website. We encourage interested parties to review that presentation. Another interesting
thing worth noting is that their expenses for defending the business model, as they call it, increased
60% sequentially over last quarter and their expenses responding to regulatory inquiries increased 70%
sequentially over last quarter and was $13 million consolidated for this quarter. So contrary to media
reports or to research notes, it seems like the regulatory side is ongoing. I'll let David Klafter comment on
that.
David Klafter
A few updates on the non-financial side. In June, a class-action settlement in the Basdic distributor case
was approved, that settlement was expected and doesn't affect any government action. On July 25, the
press reported on a video of Michael Johnson, the CEO, admitting that some distributors engaged to
what he call pyramiding and making false promises. And Johnson said that success in Herbalife was the
equivalent of a lottery tickets. On August 3, it was disclosed but not by the company...
We've not yet gotten a copy of that video but we will get a copy of that video, hopefully, at some point.
And really, it was a management presentation made internally that was recorded by the company and we
think it's quite an interesting document from a legal point of view.
David Klafter
On August 3, it was disclosed but not by the company that the Chief Compliance Officer have left the
business and going to another firm. Herbalife, we know, has not changed its disclosure about the ongoing
regulatory investigations and about the Department of Justice seeking information from the company,
some of its members and others about the business. One analyst speculated recently that the SEC is done
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with any investigation of Herbalife and that the FTC investigation will the done the summer. We have not
seen any basis for those speculations. Herbalife has now spent about $90 million defending itself and
answering regulators. It still does not spend a penny that we know of on proving retail sales. So despite
the recent volatility in the pricing, we remain confident, not just hopeful, that our thesis is correct and that
Herbalife is an unlawful pyramid scheme.
What's interesting is the best evidence that Herbalife is a pyramid scheme I would say is this quarter,
right? If you look at Mondelez's sales, they don't go up 80% in the U.K. and in the following year decline
by 20%, right? South Korea sales of Oreos don't go up 50% and then collapse 30% in the following year.
What's interesting is Herbalife is collapsing in almost every geography in the world except for China.
Michael Johnson made reference to this phenomenon calling it pop and drop, which is how they refer to
it internally. He actually made a comment about China a number of years ago that says you can go for a
very long time in this market before you could pop, for a very long time before the market drops. And the
unfortunate thing for China is that their citizens are being defrauded by the company and there are a lot
of them, so they can pop for quite some time in China. What's remarkable to me about the share price
is today the stock's trading at something in the order of 13, 13.5 -- Pershing 14x earnings. And Herbalife
historically prior to Pershing's involvement, traded at something in the order of 12x earnings on average.
The stock is clearly not, again, I don't know a business that's reported such poor earnings declining on
a volume and revenue basis and most of the rest of the world with China being the strongest part of the
story. China, I think, is a major regulatory risk for the company, i.e. China do not like pyramid schemes
nevertheless, but they also don't like multilevel marketing companies. We have not yet engaged with
Chinese regulators, but it's clearly on the list of priorities.
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Question and Answer
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With that, I'm going to go to questions. We do have a large number of questions, we may not get through
all of them, we might not get through all of them and I encourage you, if your question is not answered,
to contact the IR team at Pershing Square. Assuming your track record for the last -- what we did here
is the team tried to consolidate questions we've got many of the same kinds of questions. So if we read
one, it may not be yours but we'll hopefully do our best. Assuming your track record in the last 10 years
is replicated over the next decades, and no reason to surmise otherwise, will Pershing's AUM grow to
an unwieldy level that would dilute the potential returns of your strategy, could you comment on these
concerns? What actions will we take to remedy this dynamic, returning cash, et cetera? Have you thought
about how you'll treat long-term investors who prefer to maintain their exposure rather than receive
distributions?
We think for the foreseeable future, the reason for the foreseeable future, capital is an asset for the firm
and an asset for the strategy and the most invested we've been and we have other interesting ideas that
we are making their way through the due diligence of our analysis. But it could change. If we got to -if we view this as a high-return strategy, if you got to a level of capital where capital was a constraint
on performance, the way we'd address that problem is return the capital. How we deal with long-term
investors versus short-term investors, we have yet to make a decision about that, but we try to treat all of
our investors equally but we are obviously incredibly appreciative of the people who backed us early on.
With whom do you talk before initiating an investment? How many companies do you look at before
investing in one?
We do a fair amount of talking internally. As you're referring to the analysis we do, we often talk to
competitors, people in the industry, just to get a sense of industry dynamics. You want to talk to the
best operators, et cetera. And we look at many companies, I don't think we've kept a count of how many
we look at before we invest in one. But probably over the course of the year, we've done work on -- I
would say as a team, in reasonable depth, probably 30-ish, tens of business, not hundreds, will spend a
very short amount of time on a larger number often dismissing the business for not meeting our quality
thresholds. But we meet our quality thresholds and the price is interesting, we will spend a fair amount of
time and even then only 1 or 2 ideas typically come into the portfolio.
What's your record margin of safety? We're looking for a very substantial discount. Most of the things we
invest in we expect to double or more over a multi-year period of time. It gives you a sense of margin
safety. We very often use multiples of valuation, DCF models. I think when we explained what we own
kind of simplistically, we'll use multiples as a way to characterize the valuation of the business. But we do
think of the value of something, it's a present value of the cash. You can take out of it over its life. We do
certainly build DCF models. It depends on the nature of the earnings stream of the business, how stable it
is, how dramatically it can be changed in the short term.
Sectors do you favor? Which to avoid?
The answer is we like the highest quality businesses. Take a page from my professor from Harvard
Business School, Michael Porter. If you do kind of Michael Porter 5 forces analysis of the company, the
ones that, I guess, you get a check mark or an A plus in each of those various categories generally meet
our quality threshold.
Why do you keep ownership of each company under 10% except for Platform? All of your holdings are on
9% of the outstanding float.
It's not actually true. We have greater than 10% positions in Nomad, in Howard Hughes, in restaurant
brands. There are some limitations when you cross the 10% threshold. It affects our ability to buy and sell
securities so-called 16B and other filing requirements. But I think those are -- in some cases, it's hard for
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us to buy more than if we're building a stake. And we bought pretty much as much Mondelez as we could
possibly buy. We weren't really constrained if we had an unlimited amount of capital, we'd probably still go
to -- buy only 7.5% of that company without having to make a public disclosure.
Why aren't you doing more shorts at this time?
Short selling is risky, difficult and we're a pretty concentrated strategy and we don't want to do many
small shorts, so we'd have to at least -- it would have to be very large companies, we're looking for
cases where there's outright fraud or stock price is going to decline vary materially. We don't like the
anti-asymmetry, if you will, of short selling. We do like the asymmetry, if you will, of investing against
accredited company buying CBS. But we have to recently identify investments that meet that criteria.
Bill said several times Pershing is likely to be discriminating about shortening. Does this mean we are very
unlikely to see new shorts in the portfolio next few years?
It doesn't mean we actually won't see. I would say it's unlikely we are going to find a shorter scale, but
you never know. Now there's a large base of locked down capital, what your investors anticipate to the
likely range of net equity exposure? The answer is we keep money in cash unless we find high-return
opportunities. We've got a large number of those that were fully invested today. The stability of the capital
base allows us to be fully invested without having to keep a large base of capital to meet redemptions, but
we don't automatically become fully invested for that reason. It depends on our ability to identify the risk
by portfolio of high-quality investments.
Is there any desire to start a Pershing Square blank check company?
This would be a cash shell. This maybe something we do in the future. We have done -- we partnered with
others doing cash shells, most notably Platform -- I'm sorry, most notably really Justice Holdings and then
Platform and Nomad, which were really led by Martin. But I think it's a reason to likely that we will do one
as well.
What is the most important lesson learned since the financial crisis?
I think there's so many, it's hard to enumerate, so we'll table that one.
What is the desire for and probability of an arrangement similar to the Allergan merger attempt? Maybe
something in another industry?
The answer is we are very open to doing another Valeant-Allergan type transaction, where we team up
with a strategic acquirer that we like and trust. And we partner with them to make an offer for another -catalyze a merger with another business.
What has been the dominant source of idea generation for Pershing Square?
I would say probably reading the newspaper and looking at the capital markets generally. And in more
recent years, we've seen a fairly significant inbound of sort of inbound increase from others, interested
in either partnering with us or big passive shareholders who are unhappy with the performance of a
company. Those who become, I would say, the greater source of ideas in recent years.
Do any of your investments have the ability to be as diverse as Valeant from a capital allocation
perspective in regards to Platform, stocking extremely high IRR deal in a much smaller scale?
I think Platform specialty products offer some very analogous features to Valeant in that respect.
Do you have percentage limits on portfolio allocations?
No. But on the large side, mid-20% position is a very large investment for us. So we don't bring in
-- do not -- okay, Platform. Okay, so we're going to bring in the values of acquisition-driven business
models to greater attention. Pershing Square has helped these valuations expand due to greater market
understanding.
How are the current valuations Platform companies trending versus history?
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I don't have a particular -- I don't have that analysis.

How do you value the amount of future deals, speculation baked into current values of these companies at
record low interest rates?
We've been fortunate in some sense in that the value of the Platforms we've owned have not given much
value to the Platform itself. And we've been able to own companies like Valeant at a very deep discount
to the underlying business value without giving credit for them doing transactions. I think Platform, I
guess, we don't have a lot of comment on the Platform. But we think, the companies we own today are at
reasonable prices in light of the underlying businesses without adding a meaningful premium for Platform.
So maybe we've been helpful, in helping people think about this value. I don't know that it's really been
reflected in the companies that we've invested in to a great extent.
To what extent is your research take into account the possibility of Fed rate hike over the medium or longterm future, which may influence the performance of Platform companies?
The biggest risk factors to a so-called Platform company is their ability to access capital on attractive
terms. If you can own the business without assigning a value to that asset, if you will, you can more
greatly mitigate this risk.
Pershing's first big show of [indiscernible] we're Martin Franklin, so why not Jarden, which you mentioned
different times in your outsider presentation? I think we missed Jarden. We thought we should have been
a shareholder of Jarden over time. I think it's a great company, but less of an opportunity for us today at
the current valuation and scale.
Do you think Berkshire Hathaway is evolved into a Platform company? Are there value-creating changes,
you'd want to see at Pershing Square investor in Berkshire? Surely, Buffet can't be doing everything right.
I think, Buffet is doing a great job. I think Berkshire is in effect a Platform company, right? It's a portfolio
of different platforms. And Berkshire like Valeant, like some of these other companies, really has not
historically -- I think the stock today still probably trades at a discount to the value of the underlying
assets without giving effect to the possibility to deploy capital. And it's kind of remarkable because
Berkshire, the record is so well known.
It's a Platform question I have to skip. You plan a great Platform, it comes in your own and thus bring
together great companies with great capital allocators like Howard Hughes, certainly. Okay, Mondelez.
When did you sell to fund the new position or did you fund it through asset inflows?
We funded Mondelez through a combination of asset inflows, bond proceeds that we raised and some sales
of small position which encourage Mondelez to look at transaction with Kraft Heinz, as well as Nomad. I'm
not sure -- I think, I'm not sure what that means, okay.
Paul C. Hilal
Partner
Nomad is a little small for Mondelez, but someday.
Nomad to buy Mondelez?
Paul C. Hilal
Partner
I'm not sure what the question is about.
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Yes. I'm sure either. What is your opinion on regulation, and how confident are you there won't be price
controls in the future? It's really a rail question, Paul?
Paul C. Hilal
Partner
It's very hard to be confident about what a regulator might or may not do. But what we can say is that
we are confident that logic would have not support adverse regulation of the rail industry. Railroads are -public policy calls for enabling the railroads to earn sufficient profit to further enhance the fluidity of the
North American rail infrastructure. Rails are a less expensive, more environmentally sound, safer and more
reliable way to move freight across the country than the alternative which is the highway. Additionally,
the cost of maintaining the rail infrastructure is won by the private sector, the rail industry shareholders,
whereas the cost of maintaining the highway infrastructure is won by the taxpayers. So all of these things
considered, it's hard to envisage a great deal of momentum supporting a move to reregulate the rail
industry. And so far, we haven't seen any rumblings in that direction.
How do you view high CapEx levels in the rail industry? It seems it's very difficult to know the split
between maintenance and growth CapEx unless the return on this capital. I think it's interesting to note
that CP was spending -- one of the attacks on shareholder activists is that they encourage companies to
under invest in their businesses to promote short-term share prices. At the time of our investment in CP,
we're spending about $750 million a year in -- what's certainly pretty much all the maintenance CapEx
and it was inadequate to maintain the rail. I think we -- the company has talked about $800 million, $900
million of what we think the maintenance CapEx is today?
Paul C. Hilal
Partner
Rails generally spend about 10% of the revenue on maintenance CapEx. None of the railroads specifically
calls out maintenance versus growth CapEx. As Bill points out, the total capital expenditure budget at
Canadian Pacific in 2011 was $740 million. Today and for the next few years it's is going to be about $1.5
billion. And during this period, revenues are not -- they have not doubled, revenues are up only about
15% or 18%.
This is a company with a large -- it's probably the company we have one of the most, highest degree of
influences over. It's doubled its spending on CapEx and we feel very comfortable with how that money is
being spent and the returns that are being earned in that capital.
Paul C. Hilal
Partner
We have very long time horizon in our investment -- in our investing. And when we see companies
that are over investing in CapEx, as we've seen in other companies in our portfolio, we ask them to
reduce it. When we see companies with a very strong management that have opportunities to deploy
capital at attractive rates of return, we encourage them to do that. And this management team has been
investing at very attractive rates of return. The CapEx levels look high because most investment analysts
compare them to the D&A levels, which are dramatically lower. And the important thing to recognize when
analyzing a railroad financial statements is that the D&A levels represent depreciation and amortization
of investments that were made literally decades earlier. So because of price inflation, you'll see a big
mismatch between CapEx and D&A and that creates the feeling that railroads are a lot more capital
intensive.
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But in terms of the kind of businesses we own, the rail, CPs, if not the most -- is probably the most capital
intensive other than air products. I mean those 2 are -- again, our first choice business is a business that
earns very high return on capital and the capital is put up by some else. So you don't need capital to grow
the business. Our second choice business is a business where we do need capital to grow the business,
but that returns that can be earned are quite high. The seeking of the optionality are vertically integrated
across the transportation industry, I think, that's possible at this point that's really speculation.
Nomad, how do you value your platform before it started operating. It's a pilot cash, generally -- a
pilot cash is where the pilot cash unless it's controlled by a very talented operator investor and I pay a
premium for pilot cash. How to accept that premium, I'll leave that for the next call.
You worry about exchange rates with this investment in Nomad? I would say, I probably worry about the
more for Mondelez. In might have scaled the business. We do spend money either by combining options to
hedge the currency risk or by entering into futures of forward contracts. We do think about currency risk
with respect our investments. And we do hedge some or all of that investment just based on judgment at
times, and other times we don't. It's a judgment call.
What's the runway for restaurant brands? I think the runway is quite long. The fast food industry is very
large relatively to the size of this company and we think they are capable of running more than just.
Interestingly, the company was called Burger King Worldwide when they announced the acquisition of Tim
Hortons. I guess they could have called it Burger King Tim Hortons, insthead they called it Restaurant
Brands. It barely got to a plural with 2 concepts, so we think their ambitions, just by the name, are quite
much larger.
Howard Hughes. Uniqueness of Howard Hughes' model results in a marriage between upside from
developments and resiliency from cash flow and properties. This may be the best structure for long-term
shareholders. However, despite the excellent 4.25 year return, the stock traded significant discounts
to underlying value. So the case investors may never be able to wrap their heads around some of the
parts calculation. They need to see value even its NOI ramps. I guess that's the speculation about people
we don't know, so it's hard to say. Is there way to preserve the current structure on better highlighting
underlying value which are attracting stock, et cetera. Other desires for Howard Hughes being other
outsider type company engaging spinoffs at a corporate transactions, decided to do this with a different
company, something you can deconsolidation at Sears Holdings. So I think what you can be comfortable
with is that we're going to, and the management team is very focused on maximizing value of existing
assets and then deploying capital and earning attractive returns on the capitals that are deployed. At
the current scale of the business and at the current stage of these various developments, I would say
that Howard Hughes is structured the right way. Up until very recently, it was not a corporate taxpayer.
With time, and you'll see the more recent earnings report that the income-producing assets are becoming
a greater percentage of the value of the company as they start turning into generating net operating
income. And there will be a time where it makes sense to look at the structure of the company and decide
whether there are some separation between income-producing assets and assets that you cannot own and
flow through tax entities, so like the master-planned community land sale type assets. I don't think that
time is today, but it's something that we discussed at a board level and it's something we're quite focused
on. The share price of Howard Hughes has not been a high priority for the company in terms of driving the
share price up. The company has not issued equity, in fact, it's retired equities. We've been -- the current
shareholders are big beneficiary of the fact we brought back warrants, and we brought back warrants from
Blackstone, Fairholme and Brookfield when the stock was 72. We brought back basically 10% or more of
the company. And that couldn't have happened if the company was trading at intrinsic value. There's a
benefit was trading in intrinsic values. So there's a benefit for long-term holders if the company trades
a discount though intrinsic value program it would be generating a huge amount of cash over the next
several years as condominium contracts turn into sales, when those projects are completed. And then
the company actually can be much more opportunistic either in retiring shares or pursuing additional
investments.
Fannie and Freddie. Wall Street Journal reported on August 4 that Freddie mac earned $962 million after
interest and taxes in the most recent quarter. The Wall Street Journal wrote, "This suggests that Freddie's
long-term earnings are as far less than the $6 billion projected by William Ackman, Founder Pershing
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Square Capital Management at a conference last year. So here it is The Wall Street Journal saying, I got it
totally wrong. $9 billion versus $6 billion. So Ryan, did I get it wrong?
Ryan Israel
Director, Member of Audit Committee, Member of Compensation Committee and Member of Nominating &
Policies Committee
No. I think we should...
Did we get it wrong?
Ryan Israel
Policies Committee
We should help correct their math. There are several...
Did The Wall Street Journal forget that the quarterly earnings is a different number than the annual
earnings.
Ryan Israel
Policies Committee
Yes. I think that would be the first math suggestion I would have. So the comparable numbers for the
article would be not a little bit less than $1 billion per quarter versus $6 billion annual, but $4 billion
annually versus $6 billion. So still $2 billion up. I think what's important to highlight is the biggest driver
to get to our estimate of $6 billion is the increase in what Fannie and Freddie are currently charging their
new customers that when they continue that rate will translate into the average piece that they charge. So
they're charging a new customers 60 basis points for every new mortgage that they're getting that Fannie
and Freddie securitized. But the average that Fannie and Freddie charges all customers is only about half
that level or 30 basis points because 5 years ago, they were charging much lower prices before they -- I'm
sorry, 7 years ago they're charging much lower prices before conservatorship. That closing of the gap from
30 basis points to 60, which will happen over the next several years, will add about $3 billion after-tax for
Freddie. So the $4 billion plus the $3 billion will give you $7 billion, which is actually $1 billion more than
our estimate. Now there are puts and takes to that number, but I'd say, overall, our estimate of $6 billion
looks right on track.
Let me just say, I read The Wall Street Journal everyday, I think it is a phenomenal newspaper. And I
think that Wall Street Journal generally gets it right. The Wall Street Journal heard on The Street coverage
of Fannie and Freddie has been the most factually inaccurate articles I've read in the history of the
newspaper. Frankly, it's embarrassing for the paper and we've actually considered and we may very well
put together a little binder for them to help them on the math -- on the basic math. I mean, reporting
a quarterly number, comparing a quarterly number to our annual earnings estimate is just another sort
of embarrassing example. So great newspaper, but heard on The Street, Fannie and Freddie has been a
disaster, okay. Was I clear about that?
Is Pershing worried about significant dilution that comes in the release from conservatorship in order to
get their capital levels up?
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We think we are pretty good at protecting ourself from dilution and we hope to be in a position we're
renegotiating a deal with the government to address any inadequacy in the capital base of Fannie and
Freddie.
P id="254582424" name="Ryan Israel" type="E" />
There's a long point between what we think the stocks are worth and what they're trading at now. So any
dilution, I imagine be a multiple of where the current stocks are at the minimum.
Yes. And once there's a resolution and the entity is rate capped otherwise the stock is not going to be at
$2.50.
If network stip is ruled to be illegal, aren't all the properties the government took over the past couple of
years illegal as well? Are you going to get them back?
Yes.
Questions, what is topping Fannie and Freddie from relisting in the stock on the New York Stock
Exchange? Are you trying to help them do that?
We're not trying to help them to that. I think, I guess, if they could probably relist -- I don't know if they
made an effort to do so. Ryan do you have a point of view?
Ryan Israel
Policies Committee
FHFA still controls the board and the operational decisions of the company. So while on conservatorship,
it's not in the executive of Fannie and Freddie's control. I don't think there's anything stopping them
except for the FHFA.
It could easily be listed in the New York Stock Exchange if the conservator would allow that to take place.
And one other point on this conservatorship, and I think it's quite important, and I really encourage people
to read the former FDIC chair's amicus brief. Basically, what he said, the way the Fannie and Freddie
conservatorship was constructed, it was built literally off of the conservatorship model that is used for
all of the FDIC bank rescues. It's really the same language, repurposed for Fannie and Freddie. The way
conservatorship is supposed to work, if a bank gets into trouble, a conservator steps in to preserve and
enhance the value of the assets of the bank. And then they distribute the assets according to the various
creditors in their hierarchy of corporate clients. And what's important about that is that people will lend
money to banks can feel comfortable even if they're coming in late in the day as long as there's sufficient
asset value to protect their claim, that it can be a safe thing to put in preferred equity or debt into a
failing financial institution. And that's important for the ability to rescue community banks around the
country, smaller banks around the country and even large financial institutions. If it becomes set of law
that the conservator can wake up one day and decide to keep 100% of the profits of a bank or Fannie and
Freddie forever, then no one is safe, let along providing equity to a bank. But even providing -- buying
a bond or deferred stock or making a loan to financial institution. If banks cannot leverage their capital
structures, it will materially increase the cost of capital of the financial institution. As a result, it would
also lower the share prices, obviously, of financial institutions. And the combination of those things will
meaningfully increase the cost of credit, not just for mortgages, but for all businesses around the country.
So the unintended consequences of the network sweep are very, very materially negative for the country.
And I think the former chair of the FDIC standing up to make this point on behalf of the independent
community banks, I think is a very powerful political constituency that's frankly a lot more appealing than
hedge funds, and I think will actually have some weight.
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You're restricting in buying more shares than 10%, why not buy 25% stake?
Again, when you go more than 10% it reduces our flexibility. We do own more than 10% economically
because we have a total return swap and we have brought additional economic interest in the company.
Do ever foresee an opportunity of getting a board seat at Fannie and Freddie?
The board is controlled by the conservator. We have no ability. There's no shareholder vote. Shareholders
have been stripped from their rights, so we can't join the board. We've considered setting up, if you will,
a shadow board of Fannie and Freddie, just so that the stakeholders have an opportunity to discuss the
future of the business. It may be something we do in the future. We look forward to -- okay.
Valeant. In order to evaluate R&D costs of Valeant in a sustainable basis, don't you think one should
include acquired pipelines as an R&D cost? For example, when Salix will be included as organic. In 2016,
Xifaxan will contribute very positively to EPS. So the question is, should we be -- Jordan?
Jordan Rubin
Yes. There are a couple of ways to think about this. So first of all, organic growth in the quarter was
19%. That growth was, in part, material for newly launched product. If we strip those products out or the
revenue base, growth still would have been in excess of 10% for the quarter. But I don't even know if it's
appropriate to strip those products out because, in large part, those products were actually developed by
Valeant scientists internally. Another important point to make is that when Valeant evaluates a potential
transaction, they presume that the pipeline of the acquired company is worth nothing. And that the
transaction must clear their financial hurdles presuming that, that pipeline fails completely. Therefore, any
success that they do have from required pipeline is the result of winning on the free option.
A follow-up to that is what's your view on the required level of R&D spending? Do you think that the low
R&D to sales model works in other areas of pharma as well? Or only in areas with low innovation? How
confident are you that this low R&D model can generate sustainable growth not including M&A and that
the very high margins are not competed away? Maybe one for Bill, how do you think about the sustainable
level of R&D for Valeant in this business.
William F. Doyle
So I don't think that R&D should be thought of, in that circumstance, separate from M&A as a source of
new products. At the end of the day, pharmaceutical industry is in a period of innovation and there's an
opportunity for companies to develop products and acquire products. And they should look at both of
those options and determine using what mix of those tools that they can bring those products into their
portfolios and leverage their distribution models most effectively. What they shouldn't do is overpay for
acquisitions. They have to be very disciplined about what they'll pay. And they shouldn't flush money
down the toilet in organizations that cannot produce output in their R&D. It turns out the larger traditional
companies tend not to attract the types of researchers that are the most productive. We've seen this.
They tend to go to early-stage companies where they can focus on their particular areas of expertise and
personally get a high reward based on the success of those products. So right now, the biggest companies
are most productive when they focus on development doing clinical trials. It's very high profitability parts
of the full R&D cycle. Let the innovative work be done at small companies and be very smart about the
time and place when they bring those products into their portfolios. And that is a -- it's not easy, that's the
craft to master allocators. And again, that's one of the skills that we really see in Valeant's management.
They're incredibly efficient operators, but they're also incredibly smart about what to develop internally
and what to buy and bring in.
And what's interesting is the technology universe, marketplace has developed a very analogously
way to the pharma industry, right? If you think about big technology companies. Now the IBMs of the
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world are not generating a lot of the innovation that we see in the world. And innovations happening
at startups, the IBMs, the Microsofts and even Googles. I mean, Google, we think is one of the most
innovative companies, Google Glass, et cetera, which unfortunately, hasn't gone very far. But Google is
still acquiring -- probably acquires a company a day. I have no idea what the number is, but their R&D
comes from acquiring startups as well as developing internally. And I think the balance between internal
developments and what you can achieve through acquisition should be based on your capabilities and
what the opportunity set is. And I think people generally have a knee-jerk reaction to lower R&D spending
in pharma. I'm not saying it's a threat to the health care system and mankind. What matters is really the
R&D productivity and the overall system, right? And I think in a world in which biotechnology companies
can get venture back at very, very early stages on talented people are going to these businesses and
developing new molecules, it's a very powerful -- and then those molecules end up being acquired at big
prices and then getting distributed and marketed by the big pharma companies. I think that's a pretty
good model for health care innovation.
In fact, it's much more efficient than the model when we had half a dozen big companies doing only
internal research. We've seen much more systemwide innovation in the current ecosystem. And the
companies that have mastered the ability to treat R&D and M&A as really 2 sources to be leveraged, have
thrived. And the companies that have stopped to fix percentage R&D budgets across static infrastructures
have been really successful.
Valeant, zero-based budgeting model should probably apply to R&D as well. In some sense, you should be
thinking about how you spend your dollars from scratch to some extent. Now, again, some programs are
obviously longer term, but there isn't a lot of discipline and maybe there are some developing disciplined
in R&D spending and pharma as a result of the Valeants...
Yes. The notion that a company should spend a magic 10% on R&D year after year after year, almost is
nonsensical in the face of it. Because at some point in time, they'll have great programs and they should
extend more. And there are other points in time when programs will clearly be finished and new ideas
haven't been matured that they should spend less. So I think it's almost nonsensical in the face of it.
Herbalife. I understand that you said a few months ago that we wouldn't be as public about Herbalife
anymore, but I'm wondering if there's any activity going on behind the scenes? Or we're just waiting for
unexpected results to come to fruition?
A few things. One, I think the best evidence that there are stuff going on behind the scenes is the 60%
or 70% increase in Herbalife's spending during the quarter on defending the business model from a tax,
from a short seller and also FTC-related expense. What's interesting is the short seller didn't make any
tax during the quarter, yet the expense defending against the tax from the short seller went up 70%. So
what I believe to be taking place is that we have pretty aggressive government investigations going on by
multiple regulators. And we feel very confident in -- that the government will come to the right answer.
But we are never able to be passive. So we, obviously, are very happy to be helpful to people to get them
the truth about Herbalife.
A few more questions, believe it or not. So I'll try to take these. Okay, someone sent me a list of 50
questions. Hunter Harrison, aged 70, is the agent of change at CP, where a person's first recommendation
received the executive management. You've met Mr. Harrison of -- part ways from the company in the
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near term. If Pershing's was to identify an ideal candidate within the company, it would lead upon Mr.
Harrisons departure.
So first of all, I think, Hunter's end-to-end, he's doing quite well and we expect him back to front run the
company on any kind of announcement. But Hunter really have been actively involved with the company
and we expect him to continue to be to fulfill his contract. But obviously, at 70 with a contract that expires
in 1.5 years...
Paul C. Hilal
Partner
June 2017.
June 2017, succession has been on the mind of the company. One of the first things that Hunter did is
recruit Keith Creel, his protg from CN. Keith is obviously the logical person to be CEO of the company.
He's joined the Board of Directors, he's the President and COO.
You we're quoted as saying you don't like to invest, produce and distribute product with high sugar
content, coca-Cola, Pepsi, McDonald's?
I didn't precisely say that. I'm not a fan of sugar beverages. I don't think they add much value to society.
Sort of an interesting question I've been asking, Bill, how could you invest in Burger King if you don't
drink Coca-Cola. And it's sort of the same answer I would give about -- you would invest in a supermarket
even though I don't necessarily eat all the various products that are offered in the supermarket. You can
eat very healthfully at Burger King, and you could eat unhealthy at Burger King, that's really up to the
individual.
And a the follow-on question. Many product in the Mondelez brand portfolio contain high sugar content in
addition to artificial sweeteners, OREOs, Sour Patch Kids, Cadbury, Toblerone. Who's going to believe the
price, I guess is, is sort of the same point. I mean, I think Mondelez has a portfolio of products. I do need
a fair amount of chocolate I concluded that it's healthy. Gum, I don't chew much, but my mouth doesn't
need -- my jaw doesn't need much any exercise, I get that by just talking.
Ryan Israel
Policies Committee
It actually reduces face fat.
Those really? Okay, well, maybe I'm going to start chewing gum. But look, I think, would we invest in a
tobacco company, or maybe the most extreme version, I would say the answer is probably not. Because
we think probably almost with certainty that we wouldn't because we think the products are harmful to
society. I mean, the product that Mondelez sells, if you were to eat -- replace all the calories in your diet
with Oreos, that would not be a good thing but if you have the Oreos as a treat, et cetera, chocolate as a
treat, we think it is perfectly healthy and that's really up to the consumer to make their own decision on
the product. So that's how we think about it.
Okay. Let me go on to the next person. I've been following your portfolio, wanted to learn a bit more
about your investment philosophy.
I encourage you to read the letters to -- some of our public letters, that's the best you could do that.
You already mentioned Fannie and Freddie having the best risk-reward in the market, worth many
multiples on where they are currently trading in a scenario where the network split is deemed legal and
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the company's released from conservatorship. How long do you think will take the shares to hit $40, $50
per share? Within a few months like GOP or is it something like AIG that can take months?
The answer is it depends on what happens over what period of time. They are called $40 valuation
for the companies, 4, 5 years. Hence, based on the law being enforced and private property not being
appropriated. That's how we think about.
Why do you want 3G? I know that you serve as budgeting, incredible capital allocation. You said before
that everyone should visit the Burger King headquarters because it shows how [indiscernible]. What 3G
special compared to the other PE firms?
I think the -- you can look at their track record over decades. They've not bought and flipped businesses.
They bought and build major companies, AB InBev is an incredible business built over decades. Very longterm shareholders, incredibly disciplined. There's a lot to admire about them.
Talk a little bit about why you use OTC equity forward contracts to buy your stake in Mondelez?
So we use derivatives to buy a stake in investment that we tend to be activist. And the reason for that
is the antitrust rules considered an activist to have influence over the control of the corporation. We're
limited to purchase about $75 million of stock in the company per fund and beyond that. To get economic
disclosure, we either use options or forward contracts. Once we've applied for HSR and get approved, as
an exempt party we can then acquire the shares, and that's what we expect to do here.
Okay. Good morning. [indiscernible] regarding decision and common shares of Fannie and Freddie. Your
sentence remain positive, I think that's been addressed, okay.
From Bill Connor [ph]. With the recent price you've informed us sustainable given fiscal pressure and
increased innovation being for budget. How does manufacture investments operating?
I'm probably not in the position to comment on the whole sectors of valuation.
Mondelez, how did you get the margin safe to your downside risk in the stock given its valuation?
The answer is we think -- the stock is actually very attractively priced given the quality of the business
and the potential margin opportunity. We think that there is a huge opportunity for the company to
improve its productivity.
Mondelez big position in the fund, last position this big was Allergan with fund had an exit strategy, to deal
with Valeant or others who have bigger position was justified, is this the same case for Mondelez? What
justify a position this big?
Position is a little smaller than it appears in terms of actual dollar exposure. The forward contracts and
the stock you should think of as equity exposure. That's how we reflect it in our performance reports.
The options are really options. They're not deep in money. They have 18 month term and they represent
50 million shares or about $2.3 billion of the $5.5 billion number that the press has been using. About
$3.2 billion will be a stock position and the balance, in terms of the dollar value, is about $500 million, so
it's about $3.7 billion position in terms of how we think about it. It does have the upside of a $5.5 billion
investment. And if and when we exercise the options, we will have invested a number approaching $5.5
billion. The stock has appreciated while we've acquired it, so our cost basis is probably $500 million below
the $3.7 billion cost basis.
In terms of sizing, it's about risk and reward. We think it's a very high-quality business with a diversified
collection of global brands, being sold one Oreo at a time. Very little in the way of customer concentration,
very little in the way of competitive risk. We don't think Walmart is going to come out with a chocolate bar
in this place. I mean, these are very, very powerful brands with strong market positions at the checkout
counter. So it's just one of the -- and it's a growing business just by virtue of its global presence. So it's a
very, very safe, stable business in terms of how we think about it. And we bought it at a, I think a fulcrum
point in terms of operating performance. So we think it's very little downside and there are lots of ways
to win. Either business has able to achieve 3G levels probability on its own or there are possibilities for
transactions.
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A lot of talk in the press about activist strategy, is that good or bad? You see any risk in the horizon for
what you do, bad regulation, et cetera?
The answer is, I think, the press can have a very short form -- the risk if the press gets it wrong. And
people can play you short term with activism. There are certainly activism that's short term in nature that
I think can be a big negative for the capital markets. I do think longer form, longer-term activism is a
very healthy thing for capital markets. The good thing is very few activist end up in control of companies.
They end up with a meaningfully, a large or a large minority owner, typically less than 10%. Their ideas
generally go nowhere unless they get board and shareholder support. Unless the shareholders all of
a sudden, become very short term. And I think that's, again, unlikely because the vast majority of
companies today are controlled by the big passive investors, the BlackRocks, the Fidelitys, and Vanguards,
et cetera, who are, in many cases, permanent owners. As a result, I'm not going to vote or support things
that create short-term share price increases at the expense of long-term value. So also I think hard to
create short-term stock price increases at the expense of long-term value because investors generally
seems smarter than that.
I think from an investor, including your friend Carl Icahn and Stan Druckenmiller have said that the market
looks overvalued, but you seem to think otherwise. May I know what your thoughts are on the market?
Our Pershing Square's long-term investors are wondering why not wait for the markets to cool down and
then enter at a cheap price because the market almost [indiscernible] will experience a fall in the stock
price?
If you look at Pershing Square over the last approaching 12 years, we've been largely a net long -- a
meaningfully net long investor even going through the crisis we've had, call it, typically 80-plus percent
net long exposure. It served us well. We don't invest -- this is not an index fund and we don't invest in
the market. We invest in a handful of special situations that we have a lot of influence over. And if you
owned businesses of that kind of quality where you can have meaningful influence and you buy them at
prices that are cheap relative to what can be achieved, we think can make a lot of money over time and
that you can miss out on a lot of opportunity if you're sitting on the sidelines waiting for the stock price,
stock market to fall. We won't buy something unless we think it's cheap. So when we buy a big stake in
Mondelez, and we pay anywhere from $36 a share to $45 a share at each point, we tell the stock price
was attractive.
Is Pershing Square considering opening a chore at Herbalife at these levels, seems like it's $60 in the
markets pricing and 0 regulatory risk, despite all numbers but China being down. If you like it at $30,
you'll love it at $60.
The answer is we don't love it at all. But the answer is we don't comment on adjusting the position. I think
it's a very attractive, I'm not making an investment recommendation but at $60 a share, the market is
saying there's 0 probability of regulatory risk in the company. We think that calculation is wrong and we
also think just on the business fundamentals, owning a company which is declining in every market in
the world, except for China, a market where it's illegal to be multilevel marketing company, you might
ask yourself why are nutrition products gapping up in sales, 38% this quarter in China? It's just, again,
Mondelez is a growth company and it doesn't grow like that. And it really doesn't have growth -- a year
ago, a massive growth in U.K. and it collapse the following year-on-your quarter. Its just not the way that
people buy food or herbal tea or weight-loss powder.
Can you broaden up then what your investment time line is for Mondelez? We hope to see the equity in
the company 3 to 4 years, and we think of it as a long-term investment and we think the stock price will
be meaningfully higher over time?
It seemed like the food business especially unhealthy ones like Burger King. Again, I don't think Burger
King is inherently unhealthy, it's just you have to think about -- I don't know, I like hamburgers, I like
fries, it's fine, I just don't want to -- other people don't like fries. The answer is it's a bit of everything in
moderation.
Ryan Israel
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Policies Committee
The average customer comes in a couple of times a month.
Right.
Ryan Israel
Policies Committee
Not a lot of calories in your monthly intake.
It's not about calories, it's about the composition of...
Ryan Israel
Policies Committee
And macronutrients.
I'm not sure we're going to solve the nutrition prices for Mondelez. Yes, Ali?
Ali Namvar
Senior Analyst
In defense of Mondelez, these are really just indulgent treats if you think of them very different from a
typical mea. I mean, cereals is causing problems when you look at some of these frozen entrees, some of
those are not very good for you. You could just look at the ingredients list. And these aren't actual meals
or meal substitutes. A chocolate indulgence -- I eat incredibly healthy, and anyone here can attest to it.
But I still like to have my chocolate bar and its just fun to chew some gums sometimes which has -- it
strengthens your jaw.
I need a very strong jaw to work...
Ali Namvar
Senior Analyst
[indiscernible] You really have to think about the category. The reason why Mondelez is attractive is it's
doing well on a secular perspective even in an develop markets where there's a lot of health and wellness
concerns. And that's because indulgence is seen as a general pass in the way people think about eating in
meals. And that's why we do like it. Now Mondelez is predominantly a emerging markets in international
business, so it doesn't have those type of secular pressures that we see a lot of food companies in the
U.S. But even still, it's better preserved then that's really why we're investors.
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Thank you. So we got a few more questions and we'll achieve our goal of answering almost every
question. How do you respond to CNBC's comments early last week where David favors dating with moved
on [ph] from Herbalife and have bigger fish to fry with Mondelez.
The anwer is we certainly have bigger fish to fry with Mondelez. We certainly haven't moved on with
Herbalife. We maintain our investment in the company or our short position. We are very focused on
having this situation being resolved in a matter that's good for America and bad for pyramid schemes.
It there still Hong Kong dollar exposure? How big?
Tiny percentage of capital, that's still notionally quite large investment over base points in terms of capital.
I think we can't answer that question. And with that I appreciate your patience. We've covered, I would
say 98% of the questions other than the Platform related ones. If you further questions, please contact
the IR team. Thank you very much. Operator, please disconnect.
Operator
And this concludes today's conference call. You may now disconnect.
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2015Q2 Pershing Square Holdings, LTD., Q2 2015 Earnings Call, Aug 10, 2015

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2015Q2 Pershing Square Holdings, LTD., Q2 2015 Earnings Call, Aug 10, 2015

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QUESTION AND ANSWER

Pershing Square Holdings, Ltd.

FQ2 2015 Earnings Call Transcripts

S&P Capital IQ Estimates**

**Estimates Data not available.

Question and Answer

William Albert Ackman

I don't have a particular -- I don't have that analysis.

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