Bill Ackman drops plans to use his SPAC to invest in Universal Music Group

19 Jul, 2021 02:37
source: Singularity Financial

Singularity Financial Hong Kong July 19, 2021 – Hedge-fund billionaire William Ackman is dropping plans to use his SPAC to invest in Universal Music Group, saying the Securities and Exchange Commission wasn’t convinced the deal met the rules for such vehicles, a setback for Mr. Ackman, who crafted a first-of-its-kind pact that set it apart from a wave of other deals orchestrated recently by special-purpose acquisition companies.

In June, Mr. Ackmann said his SPAC had agreed to buy a 10% stake in Universal from French media conglomerate Vivendi SE for about $4 billion. The deal valued Universal at some $40 billion. Typically, such deals involve a previously listed SPAC, or blank-check company, merging with an unlisted business, taking it public.

Mr. Ackman’s deal was different: New York Stock Exchange-listed Pershing Square Tontine Holdings Ltd., the SPAC, didn’t intend to merge with Universal but instead become a shareholder ahead of an already-planned listing by Universal in the Netherlands. People familiar with the matter said it was structured that way because of tax and legal implications for Vivendi, The Wall Street Journal reported.

On Monday $PSTH, as it’s referred to by its retail investor devotees, announced it will no longer proceed with the Universal transaction. The U.S. Securities and Exchange Commission raised objections and shareholders also gave the deal the thumbs down by pummeling the stock. So that Universal’s owner, Vivendi SE, isn’t left hanging, Ackman’s investment firm, Pershing Square Holdings Ltd., and affiliates will buy a Universal stake and assume the transaction costs. Universal will still become a public company, it’s just that Ackman’s SPAC won’t be involved.

Trading at a large premium to the value of its cash holdings prior to the Universal deal being announced, the stock has since declined 18% to $20.63, not far from the $20 price at which shareholders could tender to get their money back. Surprisingly, the company said it hadn’t anticipated the potential impact on investors who couldn’t hold foreign securities, who margin their shares or who own call options on the stock.

PSTH has a large cohort of retail investor followers and many of them were convinced Ackman would serve up a juicy transaction. Instead, they’ve received an unpleasant lesson that paying more for a blank-check firm share than the value of the cash it holds is risky when you don’t yet know what it will buy.

Mr. Ackman said his blank-check company would now pursue a conventional SPAC merger. Based on rules governing SPACs, it has 18 months left to complete a transaction. Mr. Ackman now faces the same challenge he had initially: finding a large and attractive target when the pool of candidates is relatively small.