Live from Bloomberg's world headquarters in New York City, we are tracking the key players, the major moves, and the capital flows shaping global markets. This is Bloomberg Deals. Welcome to another episode of Bloomberg Deals, the only show dedicated to the corporate action reshaping markets. Today's big deals: Bill Ackman joins us moments from now. His activist hedge fund Pershing Square making a dual IPO in the U.S. today. Plus, a potential spirits deal goes down the drain. Jack Daniel's owner and a whiskey maker abruptly terminate their merger talks. And a Bloomberg report from overnight confirms an elevator company is set to become the dominant player in one of Europe's biggest ever private equity exits. Let's start with investors pouring out a glass for Brown-Forman, the Jack Daniel's owner terminating major talks ending the potential transatlantic combination. The news clearing the way for another company to make a deal with Brown-Forman. Michelle Davis joins us to discuss. What fell apart here? What went wrong?
It was a bit of a surprise and kind of abrupt because a week ago we were hearing the two were hot and heavy. With the Kentucky Derby coming up, it seemed like the perfect timing for them to announce something. There were controlling shareholders on both sides of the deal. When there's two involved, it makes it tougher. They couldn't come to mutually acceptable or agreeable terms to get this deal across the line. The Sazerac is an open question. They have expressed their interest in Brown-Forman. At this time, sources are telling me they're not in active talks. We will see if that changes. The other big question mark is whether down the road they decide to resume talks because the way they put out their statements, they kind of left the door open for something to happen down the road. So we will see.
This would be different. It's a private company that would be taking them over, not a publicly traded one.
Exactly. They could have their own challenges. Analysts have pointed out there is more overlap than Pernod and Brown-Forman because it's two American companies that would be a major player in American whiskey. But the offer does contemplate having a bigger role in the future of the company than what would have been contemplated. So it's unclear if Brown-Forman is open to that. We did hear that they were favoring the deal, so the jury is out.
Thank you very much, Bloomberg's Michelle Davis. Deal makers have been active in the pharma space. Let's go to Scarlet Fu.
We have a couple of cross-border deals as well. First up is an Italian company. Bloomberg has learned the talks are still at an early stage and Angelini is reviewing other possible targets as it tries to expand its global footprint. Catalyst develops treatments for rare diseases. Meantime, India's Sun Pharmaceutical has moved into the ranks of the world's top 20 drug makers now that it's buying a women's health care company in a deal worth almost $12 billion. It's got a portfolio that includes breast cancer, contraception, osteoporosis, and menopause. Eli Lilly shelling out up to $2.3 billion in cash to buy Akero Therapeutics to further build out its oncology pipeline. Lilly has been using the cash generated by its obesity drugs to invest in other areas like cancer and gene therapy. Last week they bought another company for as much as $7 billion.
Scarlet, thank you. Later this hour we will be speaking to the AstraZeneca CEO. Another big deal we are following: Shell has agreed to buy Canadian oil and gas producer Arc Resources. It's Shell's biggest in more than a decade as it seeks to sustain output in the long term. The company CEO spoke with Bloomberg Tech about the move.
I would start off by saying this is just an important point on the journey that we have been on, a journey that started over three years ago where we said we want to methodically transform the company. That's what we have been doing. So the inflection point came that as we continue to deliver performance, discipline, simplification in Shell, we felt it was time to look at more capital reallocation. The announcement yesterday for Arc was essentially just a step in that journey that we have been on. We had been looking at Arc for over two years, and so that of course predated the Middle East crisis. I have particularly been attracted to multiple elements of Arc. First and foremost, this is a liquids-rich play, high-quality resource, low cost, long duration, and a terrific basin with low carbon intensity molecules. So we like that piece of it. We like the synergies, our own assets and integration into LNG Canada, our LNG project in Canada there. Thirdly, we really like the people. We like the culture that they had developed over 30 years. So this well predated the crisis, but of course always helpful to be able to have a diverse source of supply to meet the growing energy demands around the world.
The Shell CEO on Bloomberg Tech. Now the big deal of today, and it's a day that's been years in the making for Bill Ackman and his hedge fund, Pershing Square. Pershing has raised $5 billion for a U.S. dual IPO in pursuit of a Warren Buffett investing powerhouse. For our radio and TV listeners, I want to welcome Pershing Square CEO Bill Ackman. Thank you for stopping by.
This has been years in the making, at least two years. It's had fits and starts much like this American IPO market itself. What was it like to get this over the line?
It's great. It's a great day, but it's really—it's the beginning. Beginning of a journey.
So it's the beginning of a journey and now armed with $5 billion, how quickly can you put that to work?
We think it's a good time to put the capital to work. We invest in the most liquid companies in the world. It's weeks, not months.
There is this question. Some of the companies that you own in your own portfolio, for example, Uber, Meta, they've had a good run and the question might arise: is now the right time to be doubling down?
Actually, I think the companies you mentioned are cheap stocks today. Interestingly, some of the best businesses in the world are trading at the lowest multiples they've traded at in some cases in history. Those multiples bottomed two weeks ago, so we are a little off the all-time bottom, but very bullish on the economy and there are some amazing businesses available at really cheap prices. This will be kind of a continuation of what we are doing now. So we will just add to existing positions, which will give us more ownership. And our strategy, we like to be a big shareholder.
Very liquid stocks, so the market is there. What about for a Fannie or Freddie? How does that work? How do you dive back in without moving the market?
Very thoughtful about the way we deploy the capital. We will not tell anyone on TV what we are going to do.
Don't want to front-run anyone. Perhaps a wise decision. Look, you've discussed—you were talking about it earlier—that closed-end funds trade at a discount. That's not a surprise. What does success look like? Is, for example, like a 10% discount okay?
So I want to give you a new construct to think about.
There are hundreds of closed-end funds, but they are very different animals from what we are doing here. We are adopting the closed-end structure, legal structure, corporate structure because it's the most flexible. It's never been used for the purpose we will use it for. If you think about our business as a business, think of us as an investment holding company. It's a business that's earned a 19% return on equity for the last 22 years. If you look at Bloomberg, do a search real time, find me a business that's earned 19% on equity for the last 22 years that trades for less than book value. We are taking the company public at book value, so we think it will be a cheap price. The nature of IPOs are such that in the first couple of days, I can't tell you exactly what will happen, but over time we will compound this book value. If we do anything like we have done in the past, high rate over time, it will compound and it will grow. We will run it like a real company. Closed-end funds are a backwater. No one actually wakes up and gets excited about investing in a closed-end IPO. They're generic. You don't know who runs them. I bet Bloomberg has never run a story and they don't have distinguished boards of directors. If this were a C-Corp, no one would be asking me. But you can't deploy our strategy in a C-Corp, which is why we have chosen this structure. It's more tax efficient. It's a flow-through entity for tax purposes. More tax efficient. We fix the things that are problematic about closed-end funds. It's lowest cost compensation for a management firm like us to manage this pool of assets. We charge our other funds incentive fees. We are not permitted to do so here. You take a record over the last eight years since we have had permanent capital: 24% return. That's a very high rate of return relative even to the stock market, which is 10% per annum. So it's a liquid way to invest in Pershing Square at very low cost, and we will build the value of this entity over decades.
That's just one of the companies.
That's true. You have Pershing Square and you also have ambitions to maybe list more funds. How quickly can you ramp up AUM? You said by the nature of what you are doing that you could get to a trillion in 230 years. Do you have your own internal targets?
First priority is compound for a long period of time. It's much easier than doing an IPO. IPOs can take management time and attention. We will focus on investing. We will focus on getting our Universal Music deal done. We will focus on helping the administration figure out Fannie and Freddie. We will help our company succeed. The beauty of that is it grows our AUM. And the beauty of Pershing Square, the management company, some people call it the GP, it grows with compounding. Other management firms only grow with money. You look at the alternative asset management firms, if they stop raising money, they shrink. They're sending money back to their investors as they sell assets. On our model, we build off a base. If we are up 20%, the assets will grow 20%. That's a very fast rate of growth without the need to raise additional capital.
Can you rival the size of those? Do you see yourself growing to a size of a Blackstone?
Over time, for sure. That was the point I was making. We will have—today after closing of IPO, we will have $26 billion of fee-paying assets.
Does the way you invest need to change? These are huge platforms that have many types of assets.
We invest in the largest companies in the world. Large-cap, mega-cap companies mostly based here. We are tiny in the context of the capital markets. We manage money in a concentrated fashion, but with $25 billion of capital, a couple billion dollars per investment is small in the context of the market we invest in.
This is quite unique. There's not really another structure that's listed like this. How are you thinking about it though in terms of having a listed structure, both Pershing Square and PSUS, that is centered around you and your small team, which you see that as a benefit? Does it change how you communicate? Does it change what you put on social media because it could impact share prices?
Legally is one question, but beyond that.
Actually, believe it or not, I have been very constrained on social media. Maybe you find that a surprise. With respect to talking about Pershing Square, there are a lot of limitations up to this moment in time. Now we have an SEC-registered entity. Our existing offshore closed-end fund, we're not allowed to talk about it in America. It's something we can't talk about. The beauty of this entity is we will be able to—we make an investment, we can say today we bought a 10% stake in the company, the ticker symbol, and we can keep close touch with our shareholders. One thing Elon Musk has done very well over a long period of time is he built a base of followers that were very supportive of Tesla over time, reduced the cost of Tesla stock, and that's been a competitive advantage Tesla has had. We have already a large base of followers in the capital markets. They haven't had a way to invest with us until now.
It does sometimes make for more volatility though when a post can move around share prices. How do you think about that?
We will only post stuff that's true.
That's a good rule to stand by.
At the same time, you have been pretty early in some major dislocations in this market. Be it COVID, be the inflation that followed, and some really successful hedging strategies behind that. Do you see any dislocations like that at the moment and hedging strategies you would want to deploy?
No. Actually. I think we are in a pretty—heading into a very good place. Obviously, we have a war underway, but I think we have by far the upper hand. I think Iran has been denuded of military capability and I think it's only a matter of time. The administration has moved closing the Strait. I think it was a kung fu grip type move on the part of the president. It's putting huge pressure on Iran. So I think we will get this resolved in the relative short term. That's really the biggest overhang on the market. We closed the Strait. It has an impact. Whatever, four percentage points of oil on a daily basis can move a market and that has an impact, causes inflation in the short term, but I think it's a short-term phenomenon. Once we are through it, I see a Federal Reserve that should be able to reduce interest rates. We have massive AI spending, massive energy spending. We have a tax bill that's driving investment. Every day there's however many deals being announced. An administration that's very supportive of transactions as opposed to an FTC which would stop everything. I think you will see lots of people get in the market.
You are early in this call, posting on X that any dips would be short-lived and they were—
I didn't say any dips. I basically called a recent bottom. I thought stocks were getting stupidly cheap.
Didn't even sell off 10%. I feel like some people feel uncomfortable with that. Oil today is trading around—stop feeling bothered.
You cannot think about stocks. You are thinking about stocks from an index perspective. That is like looking at the surface of the ocean—sorry, index is like looking inside the ocean. There are a lot of stocks—there is enormous volatility. We have a lot of earnings coming out in the next 24-48 hours. We could see massive moves in different directions. There is so much capital leveraged, short-term focus, tightly risk managed. The result of that is our markets are seeing massive moves in share prices. If you have the ability to be long-term, every once in a while the price of a high-quality company gets stupid cheap because someone is forced to sell because of a bad print, something that does not have a material impact. Those are the dislocations we take advantage of.
It sounds like those are over. Is that fair?
We are above stupidly cheap bottom. We bottomed each of our companies—we build a model. Our go-forward was north of 30% at the bottom. You do not see that with high-quality companies. It is in the mid-20s. It is suggested to me that the markets are cheap—or at least, this is the case for the highest quality companies are cheap. I'm not saying energy companies are cheap.
You have to avoid value traps. That is true of any market. Fair enough. In this quest to build a Berkshire Hathaway type model—you have listed these two.
Let me clarify. We are building an asset management firm that has similar attributes to a Blackstone, but it is extremely investment-centric. We will grow this principally by compounding instead of raising a lot of funds. Buffett was building over time. I became executive chair. The full Pershing Square team was available to the company. The first step we took was we signed an agreement to buy a company, and that deal will close in the next 60 days. Something like that. We will manage the assets and we are going to work with management to make sure they underwrite very high-quality, profitable insurance business. If you look at Berkshire the last 60 years, it has built most of its value becoming an insurance holding company. It was Buffett's successful management. We will do the same thing. The goal is to build a long-term diversified holding company akin to what Buffett has done over a long period of time.
I know one distinction you have made clear—there have been nerves around retail funds, but it has been centered around private credit. You have drawn a distinct line that there is no exposure. I wonder if part of that is skepticism of the asset class itself.
Of private credit generally? Anytime you have an asset class grow quickly with new participants competing, you either have to accept lower returns or more risk. That is the only way to grow in that environment. There is a continuum of quality and sponsorship. I do not think there is inherently something wrong with private credit. Investing in illiquid assets, you should have long-term capital or permanent capital.
Here you are on your quest to obtaining more permanent capital.
The underlying asset is long-term. A company, a stock is a long-term asset. The vast majority of what has caused the stock market to behave the way it has is short-term money that can leave in a minute, ETF, leave overnight in a mutual fund, even a hedge fund. When local assets were hedge funds, half the money could leave every year. It is hard to be a long-term investor if your money can leave overnight.
One of the arguments: you are accountable to shareholders. How do you keep accountability when they are not able to redeem assets out of the fund?
The shareholders have more liquidity than in any fund.
