How Bill Ackman Won by Losing the General Growth Fight

William "Bill" Ackman, founder and CEO of Pershing Square Capital Management Photograph by Scott Eells/Bloomberg

Bill Ackman isn’t always a winner. Just look at his quixotic quest to crush Herbalife, which is starting to see its stock rise again after a steep drop since his mid-December presentation. (Pyramid scheme or not, who doesn’t need weight-loss products at this time of year?)

But Ackman’s latest move on Jan. 3, backing off from his push to force a sale of General Growth Properties, is not a defeat. The Pershing Square Management chief got much of what he wanted in this battle: His investment partner and sometime rival Brookfield Asset Management will not be able to take over the mall operator quietly—at least not without a new deal that will likely enrich Pershing—and Ackman cashes out part of an immensely lucrative bet.

A short recap: Ackman paid about 35¢ a share, or $60 million, for the mall operator back in the fall of 2008, practically alone in scouring the frozen tundra of commercial real estate for deals. He held on through General Growth’s bankruptcy in April 2009. In fact, he pushed for it in the belief that it would buy time with lenders while reducing a mountain of debt. A shell-shocked management invited Ackman on the board in the belief that few would fight as hard to get the stock up again. Ackman teamed up with Canada’s Brookfield Asset Management to recapitalize the company and keep it independent from Simon Property Group. While his 25 percent stake ultimately became a 10 percent stake, Ackman claims to have reaped a 77-fold return, including spinoffs and dividends.

In August, Ackman got restless and pushed General Growth to sell to Simon. Not only would that prevent Brookfield from quietly taking over the company without paying a premium; Ackman said a sale could also boost General Growth’s stock another 50 percent. While Simon may have wanted to buy its smaller rival at one point, its enthusiasm had waned. Brookfield, with a stake four times the size of Pershing’s, openly opposed a sale. General Growth’s chief executive, Sandeep Mathrani, insisted it was better for shareholders to continue on alone. In short, there was no way to do a deal.

But Ackman is hardly the loser in this battle. For one thing, he was able to reduce his stake by selling off warrants to Brookfield at a premium of $4.25 per unit. He also got Brookfield to agree to limit its voting shares and keep its holdings to no more than 45 percent, thus preventing a quiet march to outright control. And Ackman gets to turn his attention to Herbalife, which is set to hold an investor presentation on Jan. 10 to defend itself against his allegations. (Ackman has shorted the stock, vowing to give any proceeds to charity.)

While Ackman doesn’t mind using his celebrity status to promote his bets—Ira Sohn Foundation staged a special event last month for Ackman to lay out a lengthy case against Herbalife—he doesn’t seek the spotlight when it’s not needed, nor does he value acrimony in itself. His successful proxy battle against CP Rail last year was only the third he’d staged in eight years. Like most activist investors, Ackman prefers to have management adopt his plans without a battle. When he gets much of what he wants and can’t see further upside, he also knows when to walk away.

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