Bill Ackman’s three-headed monster of a SPAC deal is out. Regulators at the Securities and Exchange Commission would not approve the innovative, but ultimately too complex proposed transaction of the largest ever special purpose company.
In a letter to shareholders from
Pershing Square Tontine Holdings
(ticker: PSTH) published early Monday, Ackman, the chairman and CEO of SPAC, wrote: “Our decision to seek an alternative initial business combination was prompted by issues raised by the SEC with various elements of the proposed transaction… We and our counsel had multiple discussions with the SEC to change its position on the issues it identified.”
But in vain. Pershing Square Tontine’s proposed deal, announced last month, was not a traditional SPAC deal. In fact, it wasn’t even a merger and would have created three public vehicles, two of them in hopes of more deals in the future. Shareholders of SPAC would have received a 10% stake in Universal Music Group, rights to a new vehicle that Ackman founded, a special acquisition rights company, or SPARC, and the remaining portion of Pershing Square Tontine. Typically, SPACs take a stake in a private operating company, which accesses its cash and goes public in the process.
Instead, Ackman’s Pershing Square Capital Management hedge fund will buy that UMG stake from its majority shareholder, the French media conglomerate
(VIVH). And Pershing Square Tontine has another 18 months to pursue a more traditional SPAC merger.
With a $4 billion war chest in her trust, that could still spell an exciting deal for the SPAC down the road. Not a word about the future of 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 PSTH’s unique scale and favorable structure will enable us to find a transaction that meets our standards of business quality, sustainable growth and fair pricing.”
Pershing Square Tontine is also canceling its stock and warrant offering. UMG will continue to list on the Amsterdam Euronext stock exchange in the coming months.
Packing another unicorn remains a challenge for Ackman and his team. Pershing Square Tontine was the largest SPAC ever raised — in July 2020 — with $4 billion in IPO proceeds and a commitment to buy a whopping $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 that a very, very large and valuable company has to be targeted. And that’s just a much smaller universe of goals than a SPAC with a trust only a fraction of that size.
(ABNB) had been a rumored target before it went public in a traditional IPO in December. Other names speculated on Wall Street and Reddit — without evidence — included payment processor Stripe, financial data giant Bloomberg LP, Elon Musk’s rocket company SpaceX, fast food chain Chick-fil-A and sports car maker Porsche.
Shares of Pershing Square Tontine fell approximately 15% immediately after the now-cancelled transaction announcement on June 4, and continued to decline thereafter. Barron’s wrote at the time that the proposed deal had many moving parts, but a sum-of-the-parts analysis provided value for investors unafraid of that complexity.
“While we believe our shareholders recognize UMG’s outstanding attributes, including attractive growth characteristics, business quality and excellent management team, we have underestimated the reaction some of our shareholders would have to the complexity and structure of the transaction,” it wrote. ackman. “We also underestimated the potential impact of the transaction for investors who cannot hold foreign securities, who make their shares marginal or who hold call options on our shares.”
Shares closed Friday at $20.63, a slight premium to the SPAC trust’s $20 per share cash value.
Write to firstname.lastname@example.org