Business

How Cost-Cutting Can Lead To Job Creation, According To Bill Ackman

Bill Ackman likes to position himself as making investments that are “good for America,” and while he admits that some of his 30 activist campaigns have cost jobs, he believes he is ultimately a job creator.

Eduardo Munoz / Reuters

It would seem contradictory for Bill Ackman to claim to be a “net-net job creator” while also being at least partly responsible for roughly 30,000 job losses.

But the founder of $13 billion hedge fund Pershing Square Capital doesn’t see any inconsistency. In fact, as he has often said over the years, he believes that his activist investing campaigns against the likes of Fannie Mae, Freddie Mac, J.C. Penney, Procter & Gamble, and many others are “good for America.” Ackman is indeed fond of framing his investment ethos in patriotic terms, and he’s trotted out this line repeatedly over the years, including as recently as July, during his latest presentation making the case for his short bet against nutrition supplement company Herbalife.

But employees at the companies he targets — many of which end up representing the human capital Wall Street investors account for as “cost savings” in deals and turnaround scenarios — may not exactly view Ackman as a superhero investor draped in the American flag. Take, for instance, the 1,500 employees at Botox-maker Allergan who have just been laid off as a cost-cutting effort in order to stave off a hostile takeover by competitor Valeant that Ackman is attempting to orchestrate. Or the 19,000 people who lost jobs at J.C. Penney under the reign of Ackman-appointed CEO Ron Johnson, as part of a campaign the hedge fund billionaire now admits was “a failure.”

Still, in an interview with BuzzFeed, Ackman stood by his patriotic investing mantra, saying that minor job losses resulting from the roughly 30 activist investing campaigns he’s waged over the years were necessary to help save the companies, and a better alternative than having an entire workforce disappear in the event of a bankruptcy or liquidation.

“Companies have to be run more efficiently because the world is a competitive place. You can’t just look at a job loss and say that’s a bad thing,” said Ackman, who added that on the whole his track record shows him to be a “net-net job creator.”

Todd Korol / Reuters

He has a point, and one that statistics seem to corroborate.

In what is perhaps Ackman’s most successful activist campaign, Canadian Pacific went from one of the worst performing railroads in North America — with a stock price around $42 per share when he first bought into it in 2011 — to what is now a more than $200-per-share stock, netting Ackman, his investors, and the company’s shareholders a hefty profit along the way. And though Hunter Harrison, the CEO Ackman put in place after joining Canadian Pacific’s board, oversaw around 4,500 job cuts, Ackman said they were mostly early retirements.

“With Canadian Pacific, Hunter offered a job to anyone who wanted one, and very few people were fired, just really underperformers,” Ackman said. “The vast majority of job reductions were voluntary retirements — people who chose to retire early in light of the older demographics of Canadian Pacific’s workforce.”

Ackman also pointed to the spin-off of Howard Hughes Corp. as another example of how his activism has created jobs that might otherwise have been lost. In late 2010, Ackman carved the commercial real estate company out of General Growth Properties, which at the time was toiling in the depths of a bankruptcy settlement.

Pershing Square and two other investors, Fairholme Capital Management and Brookfield Asset Management, invested nearly $7 billion to keep the company out of bankruptcy in order to spin off Howard Hughes. After the deal, Ackman inherited a slew of partially built commercial developments, including several malls and New York City’s South Street Seaport, as well as housing developments, all in need of completion. The deal, Ackman said, could create as many as 30,000 jobs in total.

“Had we not stepped in to save General Growth, it would likely have liquidated or been sold and thousands of jobs would have been lost,” Ackman said. “Howard Hughes is the only company we’ve ever created. To date it has created 18,000 jobs, [and] will create at least an additional 12,000 more over the next several years.”

Mario Anzuoni / Reuters

Ackman, to his credit, doesn’t gloss over the jobs lost as a result of his activist investing. He calls the changes he pushed for at J.C. Penney after agitating for a seat on the board “one of his worst failures.” Ackman admitted his decision to recommend Johnson, a former Apple executive, as CEO was the wrong choice. (Johnson ended up leaving the company less than two years later.)

“It’s the only example I can think of where there have been meaningful job losses where it was a negative,” Ackman said.

That Ackman’s three biggest activist disappointments are centered around retailers is, in his view, a result of these kinds of companies not realizing the need to adapt quickly to digital sales and adopt a strategy to cut out the intermediary (read: physical store).

“Amazon has caused more job loss in retail in America than anyone else,” Ackman said.

Where Ackman ultimately lands on the job-destroying-job-creating spectrum depends, of course, on how his current and future activist investing campaigns play out. Allergan, which has shut down plants in California as well as cutting 13% of its workforce, is one of his most recent targets.

Ackman declined to discuss the Botox-maker, citing pending litigation. But if his involvement with Allergan bears any similarity to his dealings with Procter & Gamble, more layoffs could occur before any hiring does.

After taking a stake in Procter & Gamble, Ackman successfully put enough pressure on the company to cause the ouster of CEO Bob McDonald, who had eliminated at least 6,250 jobs before his departure.

Ackman also declined to discuss Procter & Gamble, but it is worth noting that he finished selling off his entire $2 billion stake this year. Stock climbed nearly $20 per share during his involvement with the company, and has subsequently risen to more than $83 per share.

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