I have just finished reading Pershing Square's presentation at the Ira Sohn conference, when Bill Ackman began his PR assault in favour of a 7-year loan extension as the ideal solution for resolving the company's problems.
It summarises the entire analysis and case from start to finish for going long on GGP, and the company retaining common equity value out of bankruptcy. It provides a compelling argument and may well have been behind the significant rise in share price from around $1.20 to a peak of $2.40 on Friday before it fell back to close at $2.02.
I highly recommend anybody holding or interesting in General Growth takes the time to review it here.
Based on your read, are you a buy or hold on GGP?
ReplyDeleteI read it too and I think the stock should keep going up... Perhaps to $7.
I also didn't get pg 67 of the slide... When would the debt convert? And if it's a cram-down, is there a conversion?
Appreciate any thoughts... Thanks for the great blog!
Hey falanke, thanks a lot I appreciate the feedback! :)
ReplyDeleteIn answer to your question, I am already (very) long on GGP, and intend to hold for the forseeable future. That means at least the next 2yrs, and I don't currently see any timescale for selling yet, as the economic climate is only going to improve in REIT's favour over the next phase of the economic cycle.
The recent rises make the decision on whether to buy in (or more) at these prices tricky right now. Previous rises like this have lead to a sharp sell off, but this one seems to have more strength. It may be that GGP is finding a new level above $2/share - difficult to say right now, only time will tell.
Either way the rate of rises will not continue like this, so if you are considering buying, I would wait and watch for now. There will almost certainly be a period in the next month where short term investors who jumped in for a quick profit get bored or nervous and sell to cash-in, prompting a short-term correction back, and a better buying opportunity.
Assume you mean slide 66 of the presentation, which was Pershing considering scenarios other than the best case they believe should happen (all common shareholder equity remaining intact).
Conversion of unsecured debt into the equity of the company would happen only as it emerges from Chapter 11, and frequently occurs for weaker companies unable to service their debts. That wipes out existing shareholders and hence is why bankrupty companies are shunned by investors.
However that final slide was not showing what Ackman/Pershing believe is going to happen, just a worst case where ALL the unsecured debt dilutes common equity (it was produced when the share price was much lower as well, hence GGP market cap it double that level now).
Even then, the slide just illustrates you could dilute equity by a massive 95% and still shareholders would not lose out.
Appreciate your detailed response. You're right, pg 66 is what I should've referred to.
ReplyDeleteI got some shares at $0.56. Now my avg price is about $1.70. So I too have a vested interest in understanding Ackman's math.
On pg 37, Ackman plays out a scenario at 7.5% cap rate and where the debt holders converts and get 45.6% of equity. In that case, the shr price ranges from $21-$30 at the 45% equity range.
But on pg 66, when I interpolate the 45% equity convert row, I get a shr price of $19.5 at the 7.5% cap rate.
Am I missing something here? Or is there an inconsistancy in Ackman's math?
Thanks,
Falanke
Hi Falanke - only just read your reply back. I will take a closer look at the figures in the presentation and come back to you.
ReplyDelete