Bill Ackman’s PSPC deal canceled. What happens after.

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Bill ackman

Bryan Bedder / Getty Images for The New York Times

Bill Ackman’s three-headed monster from a SPAC deal is extinct. Securities and Exchange Commission regulators would not accept the innovative but ultimately overly complex proposed transaction from the world’s largest special purpose acquisition company.

In a letter to the shareholders of

Pershing Square Tontine Holdings

(ticker: PSTH) Released early Monday, Ackman, the President and CEO of PSPC, wrote: “Our decision to seek another initial business combination was prompted by issues raised by the SEC with several elements. of the proposed transaction… We and our lawyer had several discussions with the SEC in an attempt to change its position on the issues it had identified.

But in vain. The deal proposed by Pershing Square Tontine, announced last month, was not a traditional PSPC deal. In fact, it wasn’t even a merger and would have created three public vehicles, two of which were hoping for more deals in the future. SPAC shareholders are said to have received a 10% stake in Universal Music Group, the rights to a new vehicle that Ackman has invented a Special Purpose Acquisition Rights Company, or SPARC, and the remaining portion of Pershing Square Tontine. Normally, SPACs take a stake in a private operating company, which has access to its liquidity and goes public in the process.

Instead, Ackman’s hedge fund Pershing Square Capital Management will buy this 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 $ 4 billion war chest in trust, that could still mean an exciting deal for PSPC down the road. No word on the future of SPARC.

“In light of our recent experience, our next business combination will be structured as a conventional PSPC merger,” Ackman wrote in his letter Monday. “While we are disappointed with this result, we continue to believe that PSTH’s unique scale and supportive structure will allow us to find a transaction that meets our standards for business quality, sustainable growth and fair pricing. “

Pershing Square Tontine is also canceling its share buyback offers and warrants. UMG will continue to be listed on the Euronext Amsterdam 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 – as of July 2020 – with $ 4 billion in proceeds from the initial public offering and a commitment to purchase up to an additional $ 3 billion of shares by the Pershing hedge fund Square at the time of a merger. That $ 7 billion in potential ammunition for a deal means that a really, really big and valuable company must be the target. And it’s just a much smaller target universe than a SPAC with a trust only a fraction of that size.

Airbnb

(ABNB) had been a rumored target ahead of its IPO in a traditional initial public offering in December. Other names speculated on Wall Street and Reddit – without proof – include payment processor Stripe, financial data giant Bloomberg LP, Elon Musk’s rocket company SpaceX, fast food chain Chick-fil-A and the sports car manufacturer Porsche.

Pershing Square Tontine stock fell around 15% immediately after the announcement of its now canceled trade on June 4 and continued to decline thereafter. Barron wrote at the time that the proposed deal had many moving elements, but a sum of the elements analysis generated value for investors who are not afraid of this 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 some of our shareholders would have to the complexity and to the structure of the transaction, ”Ackman wrote. “We also underestimated the potential impact of the transaction on investors who are unable to hold foreign securities, who have margins on their shares or who have call options on our shares.”

The shares closed Friday at $ 20.63, a slight premium over the cash value of $ 20 per share of the PSPC trust.

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