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Pershing Square tax lien offers peek into Ackman strategy

By Matthew Goldstein and Katya Wachtel

NEW YORK (Reuters) - A federal tax lien slapped on a small company that William Ackman's $12 billion hedge fund used nearly three years ago to acquire shares in a publicly traded liquor manufacturer is shedding light on his investment strategies.

Employing small companies incorporated in Delaware by his hedge fund company, Pershing Square Capital Management LP, Ackman has been able to buy stakes in companies he is targeting without having to publicly disclose his actions.

These holding companies, controlled by Pershing Square, each buy stakes in target businesses, possibly making it easier for Ackman's fund to avoid having to disclose when it buys 5 percent or more of a publicly traded company.

Federal securities law requires investors to disclose stakes of 5 percent or greater in a company, but the law gives investors a window of 10 days in which to make the disclosure through regulatory filing.

This way, activist hedge fund managers like Ackman have made their way around the regulatory requirement.

The Internal Revenue Service on June 14 filed a lien for $96,987 in unpaid taxes against Pershing Square Holdco C LLC, an entity used in October 2010 to buy shares in liquor manufacturer Fortune Brands, according to a public filing.

Pershing Square said the lien had been filed in error and that it would be removed soon. A representative said in an emailed statement, "The proper amount of dividend withholding taxes were withheld from our funds and paid to the IRS." "Because of an administrative error the taxes were credited to another fund with a different tax ID number."

An IRS official did not return a call seeking comment.

The tax lien, while not involving big dollars, has given a peek into the strategy Ackman has used over the years to amass shares in companies in which his fund was seeking to take a big position.

Pershing Square Holdco C LLC was incorporated in Delaware on September 27, 2010, just a few days before the hedge fund began cobbling together its stake in Fortune Brands.

Regulatory filings reveal Pershing Square used four Delaware holding companies as part of its strategy to accumulate the stake in Fortune Brands, now called Beam Inc .

Similarly, in taking a 9.8 percent stake in Air Products and Chemicals , Pershing Square used small companies to accumulate shares. The hedge fund disclosed its stake in Air Products on Thursday.

Much of the hedge fund's buying, which took place from June through July, was done through seven holding companies Pershing incorporated in Delaware, mostly in early June.

Using small companies is not the only approach that an investor like Ackman might use, however. For example, investors can delay the disclosure process by requesting "confidential treatment" from the Securities and Exchange Commission. Their justification is that regular disclosure might interfere with a business strategy.

Securities law experts said it is likely that Ackman may have employed a similar strategy for building a large stake in Air Products.

(Reporting by Matthew Goldstein and Katya Wachtel)