The Wall Street Journal-20080111-Deal Journal - Breaking Insight From WSJ-com
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Deal Journal / Breaking Insight From WSJ.com
Ackman Scores
On Bearish Bets
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His Bond-Insurer Gains
Show Up Warburg Pincus;
Is It a Case of Karma?
Warburg Pincus eat your heart out.
Bill Ackman's hedge fund, Pershing Square Capital Management, has hit a home run with his bearish bets on bond insurers MBIA and Ambac. He did so well, in fact, that those bets wiped out substantial paper losses on his multibillion-dollar bullish bet on Target last spring, which has lost well more than 10%.
According to Bloomberg, the shareholder activist can boast to his investors a 22% return for 2007. A decent year even in the heyday of hedge funds, it is downright impressive in such a choppy year for the markets. (The average hedge fund rose about 10%.) It is the kind of return private-equity firms like Warburg got used to in the golden age of leveraged-buyout investing.
Mr. Ackman's bond-insurer gains are the flip side of the losses Warburg has suffered on its ill-timed bet on MBIA. With MBIA stock floundering on fears that the insurer's all-important credit rating will be downgraded, at $13.36 it trades at less than half the $31-a- share price of Warburg's $500 million investment. That is a big paper loss on a deal that hasn't even closed yet. Warburg will need a home run itself to make up for its MBIA fiasco -- a feat which isn't going to be easy given the absence of easy credit and what a minefield troubled-financial-company investments are proving to be.
Perhaps it is simply a case of karma: Mr. Ackman has said he will donate to charity his profits on the bond-insurers.
-- Dana Cimilluca
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NII CEO Gets
Marching Orders ]
NII Holdings has treated its shareholders well since the former Nextel International reorganized in bankruptcy court in 2002, with the stock up more than 30-fold. The company's board wants to make sure the new CEO does the same.
NII Holdings is taking steps to ensure the interests of incoming chief Steven Dussek are fully aligned with those of its other shareholders. As detailed in a Jan. 5 employment letter to Mr. Dussek that Web site footnoted.org flagged yesterday, the chairman of the board's compensation committee gives some not-so-subtle hints about what it expects after Mr. Dussek starts in February.
"... we would like you to consider making a commitment to NII through an investment in our shares of at least $1,000,000 when the first trading window opens and at the latest 3 months after your start date," the letter reads. As if that wasn't enough to make sure his lot is cast with the shareholders he is working for, the letter goes on, "Then we would expect you to gradually increase your holdings up to our policy of 5 times base salary after 5 years."
Mr. Dussek, a longtime wireless executive, is getting a salary of $725,000 a year. That means he is expected to invest a total of $3.6 million in the company, or an additional $2.6 million on top of the original forced investment.
Don't feel too bad for Mr. Dussek. On top of other benefits, he will get a bonus of as much as one-and-a-half times that base salary, and a healthy helping of stock and option grants.
-- D.C.
