Bill Ackman’s SPAC Confirms Talks With Universal Music

Bill Ackman

If you’re familiar with special-purpose acquisition companies (SPACs), chances are you known Pershing Square Tontine Holdings, a SPAC formed by billionaire activist investor Bill Ackman. Pershing Square, PSTH for short, is the biggest SPAC on the markets after raising $4bn from its IPO last July. 

  • After lots of merger speculations, Bill Ackman has confirmed discussions for a PSTH deal that’s unlike the SPAC deals we’re accustomed to. 
  • Normally, a SPAC will merge with a single company by buying a certain percentage of it with its cash and combining their equity, but in PSTH’s case, it’s in talks to buy a stake in record label Universal Music Group (UMG) and rollover cash left in the SPAC into a separate publicly traded entity that would then seek another merger target.
  • PSTH raised $4bn from investors and then $1.6bn from Ackman’s Pershing Square hedge fund making a total of $5.6bn on its hand. From this $5.6bn, $4.1bn will be used to purchase UMG shares while the remaining $1.5bn will be rolled over into a new entity known as a SPARC (Special Purpose Acquisition Rights Company).
  • PSTH’s current shareholders will receive shares in UMG under the discussed deal after the record label goes public on the Euronext Amsterdam later this year. Then, they’ll receive rights to buy into the new SPARC proportional to their holdings. The SPARC will be named PSTH Remainco.
  • With the SPARC, the rights are only exercisable if a merger has been completed. Unlike a SPAC, the SPARC can hold out much longer in finding a merger target compared to a SPAC that often has a two-year timeframe to find a target.
  • The deal put together by Ackman is a unique one and game-changer in the world of SPACs. Time has shown once again that Ackman has a knack for putting together interesting deals. For a fact, he had already dabbled in SPACs before it became the hot new thing.
  • After confirming discussions with Universal Music, PSTH shares tanked 14% in after-hours trading. It seems that shareholders are not confident that Ackman got them a good deal in buying Universal shares compared to what they’ll trade at on the public markets.
  • Also, PSTH shareholders may be unhappy that they won’t get a vote on the Universal deal given the way it’s structured.

Photo credit: Insider Monkey

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