Bill Ackman, CEO of activist hedge fund Pershing Square, has deemed Fannie Mae (NASDAQOTCBB:FNMA) and Freddie Mac (NASDAQOTCBB:FMCC) as companies whose shares should be worth 50 dollars. The current share price is 2 dollars per share. Pershing is aware of the common stock power because it is the largest holder of the common stock of these companies. Bill Ackman is adamant on his statement that these companies are interesting and would be rewarding in the long run.
The government recently seized the profits of these two companies which put shareholders against the government. Ackman’s claim would give some muscle to the stance of the shareholders who claims that government’s seizing the profits is like private property being seized. Ackman filed a lawsuit in the U.S District Court but dropped it later on, seeing that the cases of several stockholders were amounting to nil.
Ackman’s case would’ve been presided over by the same judge that acted in the cases presented by the stockholders of these two companies. This could be a long term strategy by Ackman, planning to pitch the case in the Court of Federal Claims. Ackman must be viewing brighter chances there. Court of Federal Claims might turn out to be different than the U.S District Court after all since the cases filed are in the context of two different violations.
The district court violates Administrative Procedures Act which is about the breaching of boundaries of authority. The second violation is about the Treasury violating the Takings Clause, seizing total income of these companies. It’s really hard to say if the stockholders stand a chance against the government; if their research work and arguments are strong enough to win the case, the government’s stance is that they allowed the companies to trade even though there was no chance of a return.
The government has been paid every inch of its investment; still the government is adamant on their stance, deeming the payback as dividends. The shareholders claim that there is foul play and inaccuracy of numbers on government’s part. The government is deliberately trying to run the companies out of business as investors out there in the market are showing interest in the stock should be aware of all these legal intricacies.
A 2 dollar share price, deemed worthy of 50 dollars, will certainly attract some big investors to the honey pot but personally we would advise against it. Too much legal action and unstable stock behavior is something we wouldn’t recommend. After all, activist hedge funds can’t really guarantee anything. It’s a war between shareholders and the government; truth be told the government seems to be winning this one.
The whole stock should be treated more like a lottery ticket based on pure chance rather than long term investment that would beget you a good return. The case isn’t over by a mile, there’s more to be seen in this whole fiasco and from the look of things both parties are in it till the end.