Ackman: the Puppet Master

Howard Hughes (NYSE: HHH)

I’ve been a long time shareholder of Howard Hughes, and it’s safe to say that things haven’t gone so well. Much has been written about Bill Ackman’s attempts to acquire the company, but nothing has been written about the recent employment agreement changes at the company.

Why are the changes being made now, and who’s really calling the shots?

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In a classic case of a Friday night dump, Howard Hughes put out an after-hours 8-K on April 4, 2025 which outlined employment agreement changes for the company’s CEO, CFO, and General Counsel. Here’s a recap of the major events leading up to the filing:

• July 18, 2023: Howard Hughes reorganizes into a holding company structure

• April 4, 2024: Bill Ackman retires from the board. Existing director, Scot Sellers, replaces him as Chairman. Ben Hakim, President of Pershing Square, joins the board in Ackman’s place.

• August 1, 2024: Howard Hughes spins off Seaport Entertainment Group (NYSEAMERICAN: SEG)

• August 8, 2024: Pershing Square looks to take Howard Hughes private, and Howard Hughes forms a special committee to evaluate offers.

• January 13, 2025: Pershing offers $85 per share, with the caveat that Howard Hughes stays public and Pershing owns +60% of the shares. It would seek to become a “diversified holding company” going forward.

• February 18, 2025: Howard Hughes confirms it received a revised proposal. Pershing would buy new shares at $90, and would claim a 1.5% management fee for “managing and investing” the new holding company’s investments.

• March 3, 2025: Howard Hughes’ special committee rebuffs Pershing’s offer and enters into a standstill agreement set to expire March 13, 2025.

• March 12, 2025: Howard Hughes extends the standstill period to April 7, 2025

• April 4, 2025: Howard Hughes discloses it amended the employment agreements of it’s CEO, CFO, and General Counsel. This was filed as an 8-K but not a press release.

• April 7, 2025: Howard Hughes extends the standstill period to April 15, 2025

• April 14, 2025: Howard Hughes extends the standstill period to April 30, 2025

• April 30, 2025: Howard Hughes extends the standstill period to May 30, 2025

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Given Howard Hughes’ CEO is the only executive that holds a board seat, I decided to focus primarily on the changes to his agreement:

• Extends his employment agreement to December 31, 2028.

  • His agreement was originally set to expire on December 1, 2025, which is more than 7 months away.

  • Generally, there’s no need to renew an agreement this early. A few months before expiry would have sufficed.

• LTIP compensation doubled from $2.25MM to $4.5MM.

  • The grant mix hasn’t changed (50/50 RSUs and PSUs), but the time vesting on the RSUs decreased from 5 years to 3 years. The PSUs are still based on NAV growth per share targets.

  • This is a reasonably significant increase given that the CEO has a salary of ~$1MM and STIP bonus of ~$2MM.

• The “good reason” definition was amended to add a clause that includes a material diminution of duties if the company goes private or becomes a subsidiary.

  • If the CEO ceases serving as an executive within 24 months of a change of control, due to a take-private or being transferred to a subsidiary, he can terminate his employment agreement for good reason.

  • This “good reason” termination allows him to collect additional payouts, but the company has 30 days to remedy the situation.

• Increased the protection period during a change of control from 12 months to 24 months.

  • If the executive were to be terminated within 24 months of a change of control period, they can receive specified payouts. Extending this protection period gives the executive more protection.

• Added a “transaction” definition to the agreement.

  • This is specifically defined as anyone owning +40% of the shares, following the occurrence of a specified event.

  • Given that Pershing currently owns ~37.4% of Howard Hughes, the 40% ownership threshold would be triggered by any of their proposed offers.

The CFO and General Counsel’s amendments are also quite similar, but do not include an increase to their LTIP.

Overall, these changes favour the Howard Hughes executives and help mitigate the uncertainty of the events currently occurring with the Pershing acquisition offers.

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While I want to believe that the rationale for the changes is as straightforward as the Board wanting to reassure the executives, I’m not entirely convinced that that’s the case.

The changes to the employment agreements seem to have been done at an odd time. Why make changes in the midst of a standstill agreement? If an acquisition was on the table back in late 2024/early 2025, why not make the amendments at that point? None of the agreements were set to expire anytime soon, so why extend them now?

To understand the dynamics at play here, let’s take a look at the individuals who make compensation/employment decisions at the board level. The compensation committee comprises:

• Scot Sellers (Chairman of the board; Chairman of the compensation committee)

  • Independent director since November 2010

  • Sat on the compensation committee since the original IPO

  • Chairman of the compensation committee since the 2016 proxy

• Mary Ann Tighe

  • Independent director since October 2011

  • Sat on the compensation committee since the 2013 proxy

• Adam Flatto

  • Independent director since November 2010

  • Most recent addition to the compensation committee in the 2023 proxy

  • His firm, Georgetown Company, partnered with Ackman (and other investors) in 2015 on a commercial property development

  • His wife is President of the Pershing Square Foundation, Bill Ackman’s philanthropic arm.

Bill Ackman used to sit on the compensation committee before he retired from the Board, so it’s safe to say that he has strong relationships with each of these directors. It’s also a fair to conclude that Scot Sellers is the most powerful person on the Howard Hughes board, given he is Chairman of the compensation committee and Chairman of the board.

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As I looked through all of the press releases pertaining to the Special Committee and the Pershing acquisition offers, I couldn’t find who comprises the members of the Special Committee itself. On the February 27, 2025 earnings call, John Kim from BMO also posed the question.

This was a classic non-answer. The company discloses who it’s using as advisors, but not who sits on the special committee itself. If I were to speculate, I would bet money that Scot Sellers has a key role.

Sellers is one of the longest-tenured directors on the Howard Hughes board, and I think it’s safe to say that Pershing more than likes him, given he replaced Ackman as Chairman of the board after he stepped down. Ackman had held the Board Chairman title since the IPO, so the passing of the baton is a significant signal.

This is where I delve into informed speculation.

• Do Ackman and Sellers have too close of a relationship? Probably.

• Would Sellers continue to serve on the Howard Hughes board if Pershing was successful in buying a majority stake, taking it private, or turning it into a holding company? Probably.

• If Sellers is on the Special Committee and he rebuffs a few “crappier” offers from Pershing but accepts a “less crappy” offer, does that give him plausible deniability and allow him to fulfill his fiduciary duty as a director? Probably.

• Does the significant increase in LTIP to Howard Hughes’ CEO help him “buy into” an acquisition offer, given he holds one of eleven board seats? Probably.

Without having access to closed-door conversations, it’s hard to put my finger on the exact dynamics at play.

Something smells off.