Ackman's Herbalife-United Tech Swap Gets Back to Basics

(Bloomberg Gadfly) -- Bill Ackman is going back to activism basics. It's about time.

The investor told CNBC on Wednesday that his Pershing Square Capital Management has essentially unwound its ill-fated bet against Herbalife Ltd., the seller of vitamin supplements and weight-loss shakes. This has been a long time coming, and is a symbolic gesture of Ackman's commitment to refining his strategy in a way that may actually make investors money. This new-and-improved Ackman is moving on to bigger (but simpler) things -- and they include United Technologies Corp. 

Pershing Square is building a stake in the industrial giant in one of the firm's first major investments since Ackman endured a bruising defeat at the hands of Automatic Data Processing Inc. last year. The ADP campaign was weird on so many levels, and the company was a complicated target at a time when Ackman really needed a quick victory. But now it seems he's (rightfully) lowering the bar for success: United Technologies is basically the lay-up of activist targets.

Speculation that United Technologies might attract an activist has grown over the past year, not least of all from us at Gadfly, and it's easy to see why. The company has three major businesses: jet engines and airplane parts, Otis elevators and climate-control technologies. There's no real strategic need for them to co-exist under one roof. Arguably, packaging the divisions together -- with their different capital requirements and growth prospects -- is weighing down United Technologies' valuation. The company's pending $30 billion acquisition of Rockwell Collins Inc. and the recently passed U.S. tax legislation have only made the breakup math easier.

It's not clear if Ackman is pushing for a breakup. He told CNBC he thinks United Technologies is a "great company" and was mum on his plan for Pershing Square's stake. I guess this is the result of his reported decision to focus more on financial analysis and less on TV promotion. But pitching a breakup to United Technologies would be a pretty straightforward activist play. It's a lot simpler than the operational changes Ackman sought at ADP, the explanation for which sometimes made it sound like he actually had a short position on the stock.

What's more, United Technologies CEO Greg Hayes (finally) seems to be coming around to the idea of a breakup. Speaking at a conference last week, he said the board is studying whether United Technologies might be more valuable split into three. Hayes has made a point of characterizing himself as United Technologies' own activist investor, so at the very least, Ackman is likely to find a willing listener and should avoid the kind of hostile face-off he had with ADP's Carlos Rodriguez.  

Ackman can hardly claim a United Technologies breakup as an original idea, but he has a plausible path to notch a success. And that is what he needs most right now. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Brooke Sutherland is a Bloomberg Gadfly columnist covering deals and industrial companies. She previously wrote an M&A column for Bloomberg News.

1. It worked for Dan Loeb at Dover Corp. 

To contact the author of this story: Brooke Sutherland in New York at bsutherland7@bloomberg.net.

To contact the editor responsible for this story: Beth Williams at bewilliams@bloomberg.net.

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