Metage Capital Limited: Open Letter to the Shareholders of Pershing Square Holdings, Ltd. Seeking Their Support Against the Company's Proposed Twenty-year Bond

London (ots/PRNewswire) -

Dear Fellow Shareholders,

Re: the proposed issue of $400m of twenty-year Bonds by Pershing Square Holdings, Ltd.

Metage Funds Limited has been an investor in Pershing Square Holdings, Ltd. ("PSH" or the "Company") since 2016. This is a significant position for us and we wanted to write to other investors to explain why we are against the proposed issue of twenty-year bonds by PSH. We would encourage all shareholders to lobby the Board and Management to fight against this latest anti-shareholder action.

History of PSH

The Company came to market in October 2014 on the back of strong performance by other funds managed by Pershing Square Capital Management LP (the "Manager"). Following the IPO, the Manager had $17.5bn under management[1],ofwhich$11.2bnwasinprivatefundsand$6.3bnwasinvestedviaPSH.ShareswereissuedintheCompanyat$25pershare.

Sincethenperformancehasbeendire.

ThesharesofPSHclosedat$18.04[2]on19July2019.Includingdividends,thisequatestoashareholderlossof27%inthe4¾yearssincelaunch.OverthesameperiodtheS&P500indexincreasedby72%.Further,theimpactoftheexistingleveragecanbeseeninthemaximumdrawdowninPSH'ssharepriceof56%,comparedto17%fortheS&P500[3].Giventhisperformance,itislogicaltoquestionthebasicconceptofleveraginganexceptionallyconcentratedportfolio.

WhathasbeentheresponseofinvestorsintheManager'sotherfunds,whohadtheabilitytoredeem?Theyhavevotedoverwhelminglywiththeirfeet.Attheendof2018,only$2bnwereleftintheManager'sopen-endedfunds[4].Asinvestorsintheclosed-endedPSHcannotredeem,thedemandforitsshareshasfallenandshareholdershavebeenforcedtosellatadiscountofupto30.6%[5]tobeabletoexit.AssetValueInvestors,anotherlong-sufferingshareholderinPSH,rightlystatedintheirrecentletter[6]thatthescaleofthisdiscountisexceptionalforaportfoliooflargecapitalizationstocks.Suchadiscountisoftenindicativethatthemarketisconcernedthattherearefundamentalgovernanceissues.

HowdoestheproposedbondinteractwiththeinterestsofindependentShareholders?

Anybondwithearlyrepaymentpenaltieswillactasaneconomicdisincentivetosettletheseliabilitiesearly.IthasthedirectimpactofextendingthelikelylifeofthefundandincreasingthevalueofthemanagementagreementtotheManager.Theadditionoffurthergearingtoaportfoliowithsofewpositionsinevitablycreatesriskandincreasestheoptionvalueoftheperformancefee.ThehighvolatilityofreturnsdeliveredbyPSHsinceIPOisacleardemonstrationofwhythisisnotinindependentshareholders'interests.

AsalovelybonusfortheManager,theproposedlong-termbondalsocreatesapoisonpillintheformofkeymanprovisionsrelatingtoBillAckman.Ifinvestorswishtowind-uptheFundorchangetheManager,theywillfirsthavetorepayalloftheoutstandingbonds.

WhymusttheCompanyborrowfortwentyyears?

Twentyyearsisanextraordinarytermforfundingpositionsinsomeofthemostliquidstocksintheworld.Aprimebrokeragearrangementwouldenablefullflexibilityinmanaginganylevelofgearingsoughtandberepayableatwill.ToensurethatPSHcansurviveanegativemoveinthemarketsisasimplematterofensuringthatpositionsarenot(excessively)leveragedinthefirstplace.Otherhedgefundmanagershaveachievedthisthroughmarket-cycles.ItisunclearwhyPershingSquareCapitalManagementshouldbeuniquelyunabletoachieveasimilaroutcome.

WhatstepshastheBoardtakentomanagetheseconflictsofinterest?

Asfarasweareaware,theBoardmadenoeffortwhatsoevertoseekinvestors'viewsonthisbondissue.ThisraisesthealarmingprospectthattheBoardcouldnotevenseethepossibilityofaconflictofinterest.ParticularopprobriummustbefocusedonAnneFarlowandBronwynCurtisasChairmanandSeniorIndependentDirectorrespectively,whohaveprimaryresponsibilityforensuringthepropergovernanceoftheCompanyandthatindependentshareholdersareappropriatelyconsulted.

ThisisnotthefirsttimeconcernsregardingtheproperoperationoftheBoardhavesurfaced.InJanuary2018,DirectorsproposedanarrangementwhichwouldhavesanctionedtheManagerbuyingalargeblockofsharesaheadoftheCompanybuyback.OnlyconsiderablepressurefromShareholdersbehindthescenesandinthefinancialpressmadetheBoardreconsider.

DoesreducingthesizeoftheCompanylimittheManager'sabilitytodeliverfuturereturns?

TheManagerhasshownacleartendencytoperformworsewithlargerassetsundermanagement[7].Ifcapitalisrequiredforaspecificinvestment,theManagerhasshownitisabletoraisespecialpurposevehiclestocapitalizeonaparticularopportunity[8].

InsummaryweappreciatetheManager'srecentfocusoninvestingandtheresultsithasledto.However,investors'patiencehasbeensorelytestedoverthelastfiveyearsanditisunreasonabletoexpectshareholderstobeboundtothecurrentstrategyuntilBillAckmanreachestheageof73.

WewouldencourageallinvestorstocontacttheBoardtomakeclearthattheyareagainsttheissueofthisbond,oranysimilarinstrument,andthattheproperallocationofcapitalshouldfocusonreturningmoneytoshareholdersuntilsuchtimeasthebalanceofsupplyanddemandfortheCompany'ssharesisrestored.

Regards,

RichardWebb,CEO


MetageCapitalLimited
London
Email:richard.webb@metage.com
Tel:+(44)2038138590


[1] PSH October 2014 Portfolio Update.
[2] Closing price for PSH NA on Bloomberg on 19/7/19. [3] Based on the maximum percentage draw down in the weekly share price of PSH and the S&P500 total return index. Data source: Bloomberg. [4] PSH Annual Report 2018; page 7. Total assets $8bn, of which $6bn is PSH; excluding Pershing Square VI, the ADP co-investment vehicle.
[5] NAV for PSH for 18 June 2019 and closing price on Bloomberg. [6] Public letter from Asset Value Investors to the Chair of PSH; 16th July 2019.
[7] Data 2018 PSH Annual Report; Metage Capital Limited analysis.
[8] See Pershing Square VI fund raised for investments in ADP.

Photo: https://mma.prnewswire.com/media/950516/Metage_Capital_Limited_Infographic.jpg

ORIGINAL APA-OTS TEXT - THE INFORMATION CONTAINED IN THIS PRESS RELEASE IS SUBJECT TO THE EXCLUSIVE RESPONSIBILITY OF THE ISSUER | PRN0011