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Getting To Know Bill Ackman: Six Part Series

Follies from Bill Ackman's early days with Pershing Square Capital

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Part I: Sears

Pershing Square started purchasing the common stock of Sears Roebuck & Company in June 2004. In addition to purchasing Sears common stock for its own account, Pershing Square approached Vornado Realty Trust (NYSE:VNO) Trust real estate investment company, to induce it to consider a potential strategic transaction with Sears. In that connection, Pershing Square began working with Vornado and purchased an equity stake in Sears for Vornado's account as well, together acquiring a 4.9% economic stake through total return swaps, shares and options in the company.

On November 5, 2004, Vornado announced that it had acquired an approximately 4.3% economic interest in Sears. Following this announcement, the price of Sears common stock rose approximately 21% over the prior trading day's closing price.

On November 17, 2004, Sears and Kmart Holding Corp. (which we refer to as Kmart) entered into a merger agreement to combine the two companies. Shareholders of Sears were given the option to elect to receive either $50.00 in cash or 0.5 of a share of the common stock for the combined company for each share of Sears common stock, representing a 36.5% premium to the trading price of Sears common stock on the day prior to Vornado's announcement.

As outlined in the Registration Statement of the Form S-4 filed by Sears and Kmart in connection with their merger, “as a result of Vornado's announcement and other concerns including maintaining confidentiality of the discussions, Sears and Kmart decided to accelerate the timeframe for implementing the proposed business combination to minimize the period during which speculation or additional price volatility could impair the parties' ability to reach an agreement on financial terms.” Pershing Square believes that its involvement enhanced both the speed and certainty of the merger between Sears and Kmart, hence contributed to the value creation for shareholders of Sears.

Part II: Wendy's

Pershing Square started purchasing the stock of Wendy's in December 2004 and by June 2005, had accumulated a 9.9% stake in Wendy's, including shares of common stock and options. Pershing Square believed that Wendy's stock was undervalued at the time and suggested certain strategic initiatives to increase shareholder value.

Specifically, Pershing Square proposed that the company (1) spin off Wendy's Canadian-based Tim Hortons division, (2) re-franchise a significant portion of Wendy's company-operated restaurants, and (3) repurchase shares using the proceeds from refranchising. Pershing Square also retained The The Blackstone Group L.P. (NYSE:BX) Group L.P. (which we refer to as Blackstone) as its financial advisor to evaluate these strategic initiatives, and Blackstone arrived at similar conclusions as Pershing Square regarding the substantial unrealized value in Wendy's stock.

Wendy's eventually spun off the Tim Hortons division through an initial public offering in March 2006, raising approximately $670 million, which was returned to Wendy's shareholders through share repurchases and higher dividends. The value of Wendy's stock (including the value of the spun-off Tim Hortons) nearly doubled during the course of Pershing Square's involvement with the company.

Part III: McDonald's

Pershing Square took a stake in McDonald's Corporation in 2005 and made a number of proposals to management that were designed to increase shareholder value. Specifically, in November 2005, Pershing Square...


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