US officials should bargain like Warren Buffett when they strike bailout deals, investor Bill Ackman says

• Public officials should bargain like Warren Buffett when they bail out big companies, billionaire investor Bill Ackman said on The Knowledge Project podcast.
• "The government shouldn't come in on terms that are more favorable than where Warren Buffett would provide the company with capital," the Pershing Square Capital chief said.
• Companies that spent billions on share buybacks may not deserve a handout, Ackman said.
• "The government should earn an adequate return on that capital and get equity upside if the business recovers," he said. "It shouldn't be free money by any means."
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Public officials should drive as hard a bargain as Warren Buffett when they bail out big companies, billionaire hedge fund manager Bill Ackman said in the latest episode of The Knowledge Project podcast.

"The government shouldn't come in on terms that are more favorable than where Warren Buffett would provide the company with capital," the Pershing Square Capital boss told host Shane Parrish.

The "big four" US airlines, bleeding cash as authorities restrict travel and people stay at home to slow the spread of coronavirus, are set to receive billions in government loans and grants.

President Donald Trump also tweeted last week that he plans to "make funds available" to energy companies suffering from the plunge in oil prices.

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The government should be discerning in which companies it bails out, Ackman said on the podcast.

For example, it shouldn't use taxpayer money to save department stores and other businesses in structural decline, he argued. Public companies that blew their cash reserves on share repurchases may not deserve handouts either, he added.

"You have airlines that have spent billions of dollars buying back stock," Ackman said. "Why should taxpayers come and in effect support the shareholders that were beneficiaries of buybacks, when had they retained the capital they wouldn't need a government bailout?"

Even if companies in key sectors collapse, they will simply change owners, he added.

"Airplanes are not gonna stop flying because airlines go bankrupt."

When authorities risk taxpayer funds on bailouts, they should demand fair compensation and be rewarded if the company bounces back, Ackman continued.

"The government should earn an adequate return on that capital and get equity upside if the business recovers," he said. "It shouldn't be free money by any means."

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Government officials have emulated Buffett in some of their bailout deals already.

When the Berkshire Hathaway boss threw a lifeline to the likes of Goldman Sachs during the financial crisis, he demanded warrants allowing him to buy their shares at a discount in the future.

The strategy "absolutely" inspired Sen. Jack Reed to write warrant provisions for the rescue bill in 2008 and the one passed last month, he told Business Insider.

Treasury officials exercised that provision to demand warrants from the airlines as part of their relief packages, which they can use to buy their shares and sell them for a profit if their stock prices rebound.