SPAC 2.0: Bill Ackman reinvents SPAC in talk with Universal Music

10 Jun, 2021 12:03
source: Singularity Financial

Singularity Financial Hong Kong June 10, 2021 – SPAC momentum may be back with 3 new mergers announced, highlighted by Pershing Square’s unique deal to buy 10% of UMG, while Chamath hit the pipeline with 4 new SPAC S-1s focused on Biotech.

William Ackman’s Pershing Square Tontine Holdings (PSTH.N) said Friday that it was in talks to buy 10% of Universal Music Group at a valuation of € 35 billion ($ 42 billion). Tontine raised $ 4 billion in an initial public offering (IPO) last summer, making Persing Square, Ackman’s hedge fund, the largest SPAC in history with an additional commitment of at least $ 1 billion.

With his complex deal to buy a stake in Universal Music and split PSTH into three, announced on Friday, Ackman is positioning himself for the next phase of the SPAC era.

Instead of buying a Bloomberg or a Stripe, private companies of the size and stature to go public in the US through a $4bn Spac, Ackman said he was purchasing a 10 per cent stake in the music publisher at a $40bn valuation and would distribute Universal shares to PSTH investors after the company lists in Europe later this year.

Universal is already in the process of being listed on Amsterdam by its French parent company Vivendi SA. (VIV.PA) and, as most companies do in SPAC trading, it does not rely on Tontine listing. That makes the merger more like a short-term hedge fund deal than a traditional SPAC transaction.

“Yet it was the other parts of the announcement that could be a harbinger of what is to come for Spacs, as they navigate a new landscape of investor scepticism and regulatory pressure.” Financial Time wrote in his report.

Tontine shareholders will receive Universal shares once the music label has been listed on the stock market. Tontine will continue to look for another deal with a $ 1.5 billion capital investment. Tontine investors will also receive a new blank check company warrant launched by Acman and pursue another deal that has not yet been decided.

“The three-pronged plan initially sent shares in PSTH down to their lowest price since September last year, but on Monday they had rebounded a bit, as investors digested Ackman’s ability to get out of a tough situation in a fairly elegant way,” the report added.

The closer Tontine’s stock trading approaches the $20 IPO price, the more likely SPAC investors will choose to redeem the stock, robbing Pershing Square of the funds it would use to finance the deal. Persing Square said Friday that it would close potential funding gaps with other funds.

Michael Ohlrogge, an assistant professor at New York University, said it was difficult for Ackman to find a decent deal in part because valuations of private companies willing to go public have reached feverish heights over the past year.  “To the extent that Ackman wasn’t able to find a deal that could deploy all of his Spac’s capital in a company at a reasonable valuation, I think that it’s good that he found a creative alternative as he did,” Ohlrogge said.  Now investors will now have two more opportunities to participate in deals led by Ackman, neither of which will be under the usual constraints of Spacs.

PSTH will remain a cash shell company that will have access to up to $2.9bn through a funding agreement with Ackman’s hedge fund, but this time there will be no two-year time limit. Pershing Square funds will own about 29 per cent of the company.

The other vehicle is a new entity that Ackman is calling a special purpose acquisition rights company, or Sparc, whose holders will have an option but not an obligation to participate in the next deal. The Sparc will list on the New York Stock Exchange, but unlike a Spac, it will not raise money before finding a target and there is no obligation on PSTH investors to exercise the option. If they choose to do so, they will pay $20 a share.

Shivaram Rajgopal, a professor at Columbia Business School, said there were positive aspects to the complicated deal. “The Sparc structure goes a step further than the Spac and gives better options to the capital providers. It involves a little bit less ‘trust me with the money’ kind of situation that we have with Spacs,” he said.

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