Bill Ackman
Bryan Bedder/Getty Images for The New York Times
Bill Ackman’s three-headed monster of a SPAC deal is off. Regulators at the Securities and Exchange Commission wouldn’t get on board with the largest-ever special-purpose acquisition company’s innovative but—in the end—overly complex proposed transaction.
In a letter to shareholders of Pershing Square Tontine Holdings (ticker: PSTH) published early Monday, Ackman, the SPAC’s chairman and CEO, wrote: “Our decision to seek an alternative initial business combination was driven by issues raised by the SEC with several elements of the proposed transaction…We and our counsel had multiple discussions with the SEC attempting to change its position on the issues that it had identified.”
But to no avail. Pershing Square Tontine’s proposed deal, announced just last month, wasn’t a traditional SPAC deal. In fact, it wasn’t even a merger, and would have created three public vehicles, with two hoping for more deals in the future. SPAC shareholders would have received a 10% stake in Universal Music Group, rights to a new vehicle Ackman coined a special purpose acquisition rights company, or SPARC, and the remaining chunk of Pershing Square Tontine. Normally, SPACs take a stake in a private operating company, which gets access to its cash and goes public in the process.
Instead, Ackman’s Pershing Square Capital Management hedge fund will be buying that UMG stake from its majority owner, the French media conglomerate Vivendi (VIVHY). And Pershing Square Tontine will have another 18 months to pursue a more traditional SPAC merger.
With a war chest of $4 billion in its trust, that could still mean an exciting deal for the SPAC down the road. No word on the future of the SPARC.
“In light of our recent experience, our next business combination will be structured as a conventional SPAC merger,” Ackman wrote in his letter Monday. “While we are disappointed with this outcome, we continue to believe that the unique scale and favorable structure of PSTH will enable us to find a transaction that meets our standards for business quality, durable growth, and a fair price.”
Pershing Square Tontine is also canceling its share and warrant redemption offers. UMG will continue to go public on Amsterdam’s Euronext stock exchange in the coming months.
Bagging another unicorn will remain a challenge for Ackman and his team. Pershing Square Tontine was the largest SPAC ever raised—in July 2020—with $4 billion in initial public offering proceeds and a commitment to purchase as much as an additional $3 billion in shares by the Pershing Square hedge fund at the time of a merger. That $7 billion in potential ammunition for a deal means a really, really big and valuable company needs to be the target. And that is just a much smaller universe of targets than a SPAC with a trust only a fraction of that size.
Airbnb (ABNB) had been a rumored target, before it went public in a traditional initial public offering in December. Other names speculated on Wall Street and Reddit alike—without evidence—have included payments processor Stripe, financial data giant Bloomberg LP, Elon Musk’s rocket company SpaceX, fast-food chain Chick-fil-A, and sports car maker Porsche.
Pershing Square Tontine stock dropped some 15% immediately after its now-canceled transaction announcement on June 4, and continued to drift lower after that. Barron’s wrote at the time that the proposed deal had a lot of moving parts, but a sum-of-the-parts analysis yielded value for investors not afraid of that complexity.
“While we believe our shareholders recognize UMG’s extraordinary attributes including its attractive growth characteristics, business quality, and superb management team, we underestimated the reaction that some of our shareholders would have to the transaction’s complexity and structure,” Ackman wrote. “We also underestimated the transaction’s potential impact on investors who are unable to hold foreign securities, who margin their shares, or who own call options on our stock.”
Shares closed on Friday at $20.63, a slight premium to the $20-per-share cash value of the SPAC’s trust.
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