Pershing Square Holdings Boosts Shareholder Value with Share Buyback

Pershing Square Holdings, Ltd. (PSH) has announced a new share buyback program, further demonstrating its commitment to enhancing shareholder value. The company, which invests in large capitalization companies, has a history of returning capital to shareholders through share repurchases. Let's delve into the significance of this latest announcement and its potential impact on PSH's capital structure.



The new share buyback program, announced on 13 December 2024, is for $100,000,000 (or 5,000,000 PSH Public Shares, whichever is lower). This is a larger program compared to the previously announced one, which was also for $100,000,000. The increased size of the new program aims to reduce the risk of it being exhausted during periods with trading window restrictions on new authorizations. Since PSH commenced its first share buyback program on 2 May 2017, it has repurchased a total of 66,551,162 PSH Public Shares for a total of $1.4 billion at an average price of $21.06. As of 13 December 2024, PSH had completed 29.3% of the previously announced $100,000,000 share buyback program, repurchasing a total of 598,409 PSH Public Shares at an average price of $48.92.

Share buybacks, such as the one announced by PSH, can have several positive impacts on a company's capital structure:

1. Reduction in Outstanding Shares: By repurchasing shares, PSH reduces the number of outstanding shares, increasing the ownership stake of existing shareholders. This makes their shares more valuable.
2. Increased Earnings per Share (EPS): A reduction in the number of outstanding shares typically leads to an increase in EPS, as the same amount of earnings is now spread over fewer shares. For example, if PSH's earnings remain constant, a 10% reduction in outstanding shares would result in an approximately 10% increase in EPS.
3. Potential Increase in Net Asset Value (NAV) per Share: Share buybacks can also increase NAV per share if the repurchased shares are held in Treasury. This is because the NAV is calculated as the total assets minus total liabilities, divided by the number of outstanding shares. A reduction in the number of outstanding shares, without a corresponding reduction in assets, would increase NAV per share. For instance, if PSH's total assets remain constant, a 10% reduction in outstanding shares would result in an approximately 10% increase in NAV per share.
4. Potential Increase in Market Capitalization: If the share price increases as a result of the share buyback, PSH's market capitalization could also increase. This is because market capitalization is calculated as the share price multiplied by the number of outstanding shares. For example, if the share price increases by 10% as a result of the share buyback, and the number of outstanding shares remains constant, the market capitalization would increase by approximately 10%.

In conclusion, Pershing Square Holdings' share buyback program is expected to be accretive to NAV per share and will reduce PSH's capital, as stated in the announcement. This is because the reduction in outstanding shares will increase the ownership stake of existing shareholders, potentially increase EPS, NAV per share, and market capitalization. By returning capital to shareholders through share repurchases, PSH demonstrates its commitment to enhancing shareholder value and creating long-term sustainable growth.