An Open Letter to HHH's BoDs

On Pershing Square's merger proposal

Note: To HHH shareholders, I invite you to join me in sending the letter, here is the address¹.

Dear HHH Board,

I am writing to express my concerns regarding Pershing Square’s merger proposal ²(Dated Jan 13, 2025). I believe several issues warrant your attention:

1. Opportunistic Timing and Valuation
   The proposal states, “HHH stockholders would have the option of receiving more than a majority of their Merger consideration in cash at $85.00 per share – representing a premium of 38.3% to the unaffected stock price and a premium of 18.4% to the closing price this past Friday.”

   This conveniently overlooks that the offer comes at a multiple-month low for HHH's stock price, primarily due to a 20% decline since late November unrelated to fundamentals or company-specific news. Moreover, the offer price is 39% lower than HHH's projected NAV of $118 in September 2024.

2. Misleading Shareholder Options
   The proposal states, “the Company’s stockholders would benefit from a cash/stock election that would enable them to elect to receive Merger consideration in cash at $85 per share, or to ‘rollover’ all or a portion of their shares into the post-merger company” and believes “many if not most shareholders will prefer to roll over.”

   The proposal creates a narrative that honors stakeholders' wishes by allowing them to keep their shares. However, this portrayal is not entirely accurate. It doesn’t sufficiently emphasize that if all shareholders opt for rollover, they will be forced to convert 37.8% of their position to cash, resulting in an involuntary position reduction and likely triggering unplanned and/or unwanted tax events.

   That fact was obfuscated by the proposal stating: “The cash/stock election would be subject to proration intended to ensure that the Company maintains a public float of at least 13.6 million shares, or 30.8% of the Company’s then issued and outstanding share capital.” While cash proration can be attributed to maintaining a minimum public float, stock election proration only ensures that Pershing Square holds majority control after the transaction.

3. Management Fee
   The proposal aims to transform HHH into a "modern-day Berkshire Hathaway," yet it includes a 1.5% management fee based on HHH's market cap. Berkshire charges no management fee for each business (except when capital is deployed) and keeps a lean head office expense. For example, Buffett takes a $100k salary, 0.00001% of BRK's Market Cap.

   Even ignoring the incredibly high Buffett bar, a fund charges a management fee as a percentage of its capital, for which it actively selects and evaluates investment ideas and deploys that capital.

   In HHH’s case, that has all been done. As the proposal states, "We do not intend to make any changes to the HHC organization, its employees, or its strategy."

   In summary, this fee structure is inconsistent with Berkshire Hathaway's approach that the proposal claims to model and deviates from commonly accepted best practices of fee structure. This discrepancy raises questions about the proposal’s true alignment with all public shareholders.

4. Concentrated Ownership
   The proposed transaction would substantially reduce HHH's public float, making Pershing Square the majority shareholder. This concentration of ownership could reduce liquidity and further limit the influence of minority stakeholders in future company decisions.

   The proposal intends to address that concern: “HHH would be governed by an independent board of directors, and Pershing Square’s voting power would be contractually limited to less than 50% of shares outstanding despite our substantially larger economic ownership.”

   Without access to detailed plans, it's challenging to envision how such self-imposed restrictions could be maintained effectively over time.

In light of these concerns, I urge the Board to carefully scrutinize this proposal and consider its long-term implications for all shareholders. It is crucial to ensure that any potential merger or acquisition truly serves the best interests of the company and all its stakeholders, not just those of the majority shareholder. Thank you for your attention to these critical matters.

Sincerely,

Siyu LI

A HHH Shareholder and,

Author, “Under the Hood” (underhood.substack.com)

1. The Board of Directors

Howard Hughes Holdings Inc.

9950 Woodloch Forest Drive, Suite 1100

The Woodlands, Texas 77380

2. https://assets.pershingsquareholdings.com/2025/01/13060332/HHH-Proposal-Letter.pdf