UPDATE 1-Ackman's Pershing Square reports big stakes in Freddie, Fannie
Nov 15 (Reuters) - Activist investor Bill Ackman's Pershing Square hedge fund has invested half a billion dollars to acquire stakes of nearly 10 percent each in Freddie Mac and Fannie Mae, the latest big investor this week to buy into the mortgage finance companies.
Shares of both companies surged on Friday, when Pershing said in regulatory filings it has a 9.77 percent stake in common shares of mortgage insurer Freddie Mac and a 9.98 percent stake in Fannie Mae.
Bruce Berkowitz of Fairholme Capital Management announced this week that he and other investors were willing to buy and recapitalize government-controlled Freddie Mac and its sister company, Fannie Mae.
In light of the proposed Fairholme transaction, Pershing said in the filings that "they may engage in discussions with management, the board, other stockholders of the Issuer, representatives of the Federal government, and other relevant parties" involved with Freddie Mac and Fannie Mae.
Pershing added: "The Reporting Persons believe that the Issuer's common stock is undervalued and is an attractive investment."
Shares of Freddie Mac rose roughly 8 percent to $3.13 a share, while Fannie Mae shares rose 9.15 percent to $3.34 on Friday. Both companies trade on the OTC equity markets.
Berkowitz's Fairholme Funds scooped up preferred shares of Fannie Mae and Freddie Mac with a face value of $3.5 billion at a massive discount, as well as some common shares.
Berkowitz's plan consists of contributing those shares as part of the proposed buyout. Fannie Mae and Freddie Mac have been operating under government conservatorship since September, 2008, and paying nearly all of their profits to the federal government in the form of dividends.
The two mortgage giants are close to paying back much of the $187 billion they received in a taxpayer-funded bailout and still play a dominant role in the U.S. mortgage market by backing the vast majority of newly issued home loans.