Nearly 50 law firms have banded together to voice their defense of SPACs as lawsuits mount against blank-check firms

Bill Ackman
Bill Ackman, founder and CEO of Pershing Square Capital Management

  • 49 law firms are hitting back at lawsuits against SPACs that are seeking to have them regulated as investment companies.
  • The firms said the SEC has reviewed more than 1,000 SPACs and haven’t deemed them subject to the Investment Company Act of 1940.
  • A high-profile lawsuit was filed last month against billionaire Bill Ackman’s SPAC, Pershing Square Tontine Holdings.
  • See more stories on Insider’s business page.

A number of US law firms are pushing back on lawsuits against SPACs that claim the blank-check companies are operating as investment firms and should be regulated as such.

The 49 law firms “view the assertion that SPACs are investment companies as without factual or legal basis,” they said in a letter issued Friday.

The firms said consistent with longstanding interpretations of the Investment Company Act of 1940, any company that temporarily holds short-term Treasuries and qualifying money market funds while engaging in its primary business of seeking a business combination is not an investment company under the 1940 Act.

They said staff at the Securities and Exchange Commission have reviewed more than 1,000 SPAC initial public offerings over two decades and those haven’t been deemed to be subject to the Act.

The letter was released after billionaire hedge fund manager Bill Ackman’s SPAC, Pershing Square Tontine Holdings, was sued earlier this month and the high-profile case could have an impact on the wider industry that’s seen a boom in business over the past year.

The lawsuit against Pershing Square Tontine Holdings alleges it’s operating more like an investment fund than an operating company – similar to his hedge funds – and that it should be regulated by the 1940 Act. Investing in securities “is basically the only thing that PSTH has ever done,” the complaint viewed by Insider said, adding that buying stocks is not what a SPAC should be doing.

The lawsuit by shareholder George Assad is being backed by a group of lawyers that include former U.S. Securities and Exchange Commissioner Robert Jackson and Yale law professor John Morley. Assad also filed lawsuits against blank-check firms Go Acquisition and E.Merge Technology Acquisition with the group’s backing.

The lawyers that sued Ackman’s SPAC are targeting as many as 50 different SPACs in the coming months, according to a Reuters report and a CNBC report last week.

“We believe this litigation is totally without merit,” Pershing Square Tontine Holdings said in a statement this month. “The complaint bases its allegations, among other things, on the fact that PSTH owns or has owned US Treasurys and money market funds that own US Treasurys, as do all other SPACs while they are in the process of seeking an initial business combination.”

Ackman in July ended his plan to buy 10% of Universal Music for $4 billion after federal regulators raised issues about the proposed transaction, the billionaire announced in his shareholders’ letter.

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Billionaire investor Bill Ackman’s SPAC is reportedly being sued for not operating as a blank-check firm

bill ackman
  • Bill Ackman’s SPAC is being sued for not operating as a blank-check firm, the New York Times reported.
  • They argued that Ackman’s SPAC has behaved more like an investment company than an operating company.
  • Ackman’s SPAC pushed back saying it has never held investment securities that would require it to be registered under the Act.
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Billionaire hedge fund manager Bill Ackman’s SPAC is being sued for not operating as a blank-check firm, the New York Times first reported Tuesday, a case that could affect the broader industry amid a boom in the past year.

Ackman’s Pershing Square Tontine Holdings was hit with a lawsuit by former SEC Commissioner Robert Jackson and Yale law professor John Morley.

Both argued that Ackman’s SPAC is operating more like an investment fund than an operating company -similar to his hedge funds – which means it should instead be regulated by the Investment Company Act of 1940.

Investing in securities is basically the only thing that PSTH has ever done,” the complaint viewed by Insider said, adding that buying stocks is not what a SPAC is supposed to do.

The lawsuit, filed in US District Court in Manhattan, also pointed to the warrants – the right to purchase common stock at a certain price – that sponsors and directors would receive.

“This staggering compensation was promised at a time when the returns to the Company’s public investors have starkly underperformed the rest of the stock market,” the complaint said.

Pershing Square pushed back against the lawsuit Tuesday saying it has never held investment securities that would require it to be registered under the Act – and does not intend to do so in the future.

“We believe this litigation is totally without merit,” the statement said. “The complaint bases its allegations, among other things, on the fact that PSTH owns or has owned US Treasurys and money market funds that own US Treasurys, as do all other SPACs while they are in the process of seeking an initial business combination.”

In July, Ackman scrapped his plan to buy 10% of Universal Music for $4 billion after federal regulators poured cold water on the proposed transaction, the billionaire announced in his shareholders’ letter.

Days after, Ackman lamented his nixed SPAC deal but hinted he already has alternative targets in mind.

SPACs, shell companies that list with the aim of merging with private companies and taking them public, have exploded in popularity in the past few years.

This method is typically done in lieu of an IPO or a direct listing and has garnered support from Wall Street heavyweights as well as pop icons and professional athletes.

Ackman, for his part, has tried to rewrite the rules for his SPAC.

For instance, he said he will be “taking no compensation” in a bid to appeal to more investors. “We created the most investor-friendly SPAC in the world,” Ackman said, adding that SPACs are an easier route to public markets than a traditional IPO.

But given the frenzy around blank-check listings, regulators have begun looking into tightening the rules.

In 2020, a total of 248 SPACs raised $83.3 billion according to SPAC Analytics. Over halfway through 2021 alone, data already show 412 SPACs that have raised $121 billion, comprising 53% of initial public offerings.

The past months however have seen a slight cooling off in the red-hot SPAC market as first-day trading spikes that were common in the space earlier this year begin to evaporate.

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Billionaire investor Bill Ackman trumpeted his Universal Music deal, nodded to his Reddit fans, and invited company sellers to call him in a presentation this week. Here are the 8 best quotes.

Bill Ackman, Ackman, William Ackman
Bill Ackman.

  • Bill Ackman dug into his $4 billion deal to buy 10% of Universal Music in a presentation this week.
  • The hedge fund manager emphasized music’s timeless appeal and lauded the group’s CEO.
  • Ackman also mentioned his Reddit fanbase and discussed his proposed SPARC investment vehicle.
  • See more stories on Insider’s business page.

Billionaire investor Bill Ackman touted his recent deal to buy 10% of Universal Music Group for $4 billion in a presentation on Wednesday. He underscored the power of the music publisher’s business model, ranked its boss among the best CEOs in modern history, and tipped his hat to the Reddit users who cheered him on while he worked to close the transaction.

The Pershing Square Tontine Holdings (PSTH) boss also emphasized the lasting appeal of music, explained the key strengths of his planned special-purpose acquisition rights company (SPARC), and invited private companies that fit his requirements to call him if they want to go public.

Here are Ackman’s eight best quotes from the presentation, lightly edited and condensed for clarity:

1. “We got our first meeting and it was love at first sight. We dug in and really stopped looking at other opportunities because we had found our target.” – discussing the start of talks with Universal about eight months ago.

2. “It was a bit like the dog that grabbed the bumper of the car and wouldn’t let go because this was precisely what were were looking for.” – underscoring how well Universal fit Pershing’s criteria.

3. “If you own Universal Music Group, you own a royalty on people listening to music. I can’t think of an asset that I have more confidence in it being consumed over time, other than food and water. But the difference with music is you can create IP that you can license to others.”

4. “Think about the iconic CEOs that will be remembered. Think about Walt Disney, think about Steve Jobs. Lucian is an executive who will be remembered for his contribution to this industry. He’s a tremendous human being.” – praising Universal CEO Lucian Grainge.

5. “You don’t need to go hire a ton of developers; everyone wants to be a rock star. There are a lot of entrepreneurs working really hard pitching Universal and hoping Universal will back them in their careers. They want Universal because Universal has had better success than anyone else in making you a star.” – explaining why Universal has a better business model than a typical software company.

6. “Analysts value these interests at anywhere between $2 billion and $4 billion if you were to liquidate them all tomorrow. We’re getting those investments ‘free’ and that’s always a good price.” – commenting on Universal’s investments in Spotify and Tencent Music.

7. “There are some excellent analysts on Reddit. There is a community of people that are studying this company.” – nodding to the members of the r/PSTH subreddit who have been closely following his deal since last year.

8. “It takes away the shot clock from us. We’re never going to put money to work because we’re under pressure, but I don’t like that people are waiting for us to do something and their money is sitting there. I feel that burden and this removes that burden.” – highlighting a key advantage of his proposed SPARC vehicle, which differs from a SPAC because it won’t tap investors for cash until it has struck a deal.

9. “If someone needs $1.5 billion to $3 billion and wants to go public tomorrow, call me.” – Ackman emphasized that businesses need to meet Pershing Square’s criteria.

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Hedge fund manager Bill Ackman’s mega-SPAC seals $4 billion deal to buy 10% of Universal Music

bill ackman
Bill Ackman.

  • Bill Ackman has agreed a deal to buy 10% of Universal Music Group for about $4 billion.
  • Ackman’s Pershing Square Tontine Holdings will remain a public company following the transaction.
  • Shareholders are set to have UMG and PSTH shares plus the chance to back a new investment vehicle.
  • See more stories on Insider’s business page.

Bill Ackman’s pitch to buy 10% of Universal Music Group (UMG) for about $4 billion has been accepted, the billionaire investor announced on Sunday. He also confirmed his intention to pursue two more multibillion-dollar deals, paving the way for fresh intrigue after seven months of speculation about his original target.

Ackman’s Pershing Square Tontine Holdings (PSTH), a special-purpose acquisition company (SPAC), will purchase the minority stake in Drake and Billie Eilish’s record label from its parent company, Vivendi. The French media conglomerate intends to list UMG on the Euronext Amsterdam Exchange in September, and PSTH shareholders are set to receive their shares in the music group before the year ends.

“When the transaction is completed, our shareholders will directly own 10% of the common stock of an independent, publicly traded, large capitalization, extraordinary business with a superb management team,” Ackman and his team wrote in a presentation about the deal.

Unusually, PSTH will remain a public company after the transaction, and seek to deploy as much as $2.9 billion on another business combination. Ackman and his team are already searching for a compelling target, they said.

PSTH shareholders are set to receive UMG shares, continue to own PSTH shares, and will also be handed warrants to buy shares of a special-purpose acquisition rights company (SPARC) for $20 a pop. The SPARC, which hasn’t been approved by regulators yet, could be armed with up to $10.6 billion to pursue a separate business combination.

Ackman’s SPARC is similar to a SPAC, but it doesn’t let investors buy its shares until it has struck a deal. As a result, it doesn’t tie up their capital while it searches for a business combination, and also escapes the pressure of having to close a transaction within two years.

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Billionaire investor Bill Ackman told a story about his song-writing grandfather that won over Universal Music’s bosses

bill ackman
Bill Ackman.

  • Bill Ackman’s SPAC is close to buying 10% of Universal Music Group for $4 billion.
  • Ackman told a story about his grandfather, a songwriter, to win over UMG’s bosses.
  • UMG executives gifted Ackman two records and the sheet music for his grandfather’s hit song.
  • See more stories on Insider’s business page.

Bill Ackman’s special-purpose acquisition company (SPAC) is close to buying 10% of Universal Music Group for $4 billion. The billionaire investor might have his grandfather’s musical talents to thank if he manages to seal the deal.

The Pershing Square chief began his first meeting with UMG executives by regaling them with a story about Herman Ackman, The Wall Street Journal reported, citing people involved in the transaction.

Ackman’s grandfather wrote a song called “Put Your Arms Where They Belong (For They Belong to Me)” in 1926, which he sold to music-publishing group Tin Pan Alley for $150. The ditty sold more than 750,000 copies, Ackman told the bosses of the world’s biggest music company, according to The Journal.

The UMG executives later discovered that their company owned the elder Ackman’s recording. They dug up two records of the song and the accompanying sheet music, mounted and framed them, and gifted them to Ackman, The Journal reported.

Read more: A 29-year-old crypto billionaire shares how investors can use Tesla or Apple stock as collateral to buy bitcoin or ether

Vivendi, UMG’s parent company, met with multiple private-equity firms and other investors interested in buying a piece of the division. Ackman’s clear passion for the music business – rooted in his grandfather’s legacy – along with his relationship with management and his vision for growing the company, helped him stand out from the crowd, The Journal said.

Ackman’s SPAC, Pershing Square Tontine Holdings, is the vehicle looking to acquire the UMG stake. PSTH, which joined the stock market last summer, would remain a public company and could have nearly $3 billion to pursue another deal, even if the UMG transaction is successful.

Pershing Square also hopes to launch a new take on SPACs called a SPARC, which won’t lock up investors’ capital while it searches for a deal, and won’t have the pressure to close a deal within two years. Ackman’s proposed SPARC would be armed with up to $11 billion to pursue a business combination.

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Bill Ackman’s SPAC falls after confirming talks to acquire 10% of Universal Music in long-awaited deal

FILE PHOTO: FILE PHOTO: Bill Ackman, CEO of Pershing Square Capital, speaks at the Wall Street Journal Digital Conference in Laguna Beach, California, U.S., October 17, 2017. REUTERS/Mike Blake/File Photo
  • Bill Ackman’s SPAC fell as much as 11.6% Friday after it confirmed it is in talks to reach a deal with Universal Music.
  • Pershing Square Tontine Holdings’ investment could value the music group at $40 billion.
  • The size of the blank check firm and prominence of Ackman has had investors eagerly awaiting news of the deal since PSTH went public last summer.
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Billionaire Bill Ackman’s special purpose acquisition company Pershing Square Tontine Holdings fell as much as 11.6% Friday after it confirmed it is in talks to reach a deal with Universal Music.

Shares of the blank check company traded around $22.50 shortly after the Friday opening bell.

Friday morning Pershing Square Tontine Holdings confirmed that it is in discussions with Vivendi to acquire 10% of the outstanding ordinary shares of Universal Music Group for approximately $4 billion.

The deal with Universal would be the largest SPAC transaction on record, according to the Wall Street Journal. It would have an enterprise value of about $42 billion.

Ackman’s pending deal with Universal Music was first reported by The Wall Street Journal. PSTH shares fell as much as 8% in Thursday aftermarket trading after the news broke.

The size of the blank check firm and prominence of Ackman has had investors eagerly awaiting news of the deal since Pershing Square Tontine went public last summer.

In a press release, Ackman called Universal Music Group “one of the greatest businesses in the world,” and touted the deal as an “iconic transaction.” He highlighted UMG’s leading market share, stellar management, exposure to music streaming, minimal capital needs, and several other attributes that attracted him to the business.

But not all investors are excited about the acquisition. A measure of social sentiment showed that users on StockTwits were largely bearish on the SPAC Friday morning.

“SPACs are dead 🙂 I’m glad you all got burnt. Stop buying bull s**t,” one user wrote. “Told u all it’s not starlink,” another said.

Ackman’s hedge fund and its affiliates have the right to buy another $1.4 billion of PSTH stock, meaning the vehicle could be armed with almost $3 billion to pursue another business combination.

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Billionaire investor Bill Ackman’s SPAC is close to striking a deal with Universal Music, report says

bill ackman
Bill Ackman

  • Bill Ackman’s SPAC is close to striking a deal with Universal Music, The Wall Street Journal said.
  • Pershing Square Tontine Holdings could agree a transaction valuing the music group at $40 billion.
  • Universal Music, a division of Vivendi, racked up $9 billion in revenue last year.
  • See more stories on Insider’s business page.

Billionaire investor Bill Ackman’s special-purpose acquisition company (SPAC) is close to agreeing a transaction with Universal Music Group that would value the music titan at $40 billion, The Wall Street Journal reported on Thursday, citing people familiar with the matter.

Ackman’s Pershing Square Tontine Holdings might finalize the megadeal in a matter of weeks, although it could still fall through, sources told The Journal. PSTH shares fell as much as 8% in aftermarket trading after the news broke.

Universal Music, which represents artists including Taylor Swift and Billie Eilish, is currently owned by Vivendi, a French media conglomerate. The segment grew constant-currency revenue by 5% to 7.4 billion euros ($9 billion) last year, and operating income by 20% to 1.4 billion euros, Vivendi’s latest annual report shows.

Vivendi disclosed in mid-May that it was considering selling 10% of Universal Music to an “American investor” – which may be Ackman – or pursuing a public offering of 5% to 10% of the segment’s shares. Tencent, a Chinese technology conglomerate, doubled its stake in Universal Music to 20% last year, valuing the business at 30 billion euros.

Ackman, the boss of Pershing Square Capital Management, said last month that his team had identified an “iconic, phenomenal, great business” back in November 2020, and he hoped to strike a deal to purchase a piece of it within the next few weeks. He said the target was so attractive and interesting that it was “worth the energy and the effort.”

The hedge fund manager took PSTH public last summer with the goal of spending around $5 billion for a minority stake in a private business. Ackman’s reputation as a top investor – boosted by his lucrative pandemic hedge and his fund’s 70% gain last year – and the size of his SPAC prompted intense speculation about his possible target.

Pershing Square Capital Management declined a request for comment from Insider.

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Billionaire investor Bill Ackman hopes to close his mega SPAC deal in a couple of weeks – and continues to hedge against inflation and a market downturn

Bill Ackman, Ackman, William Ackman
Bill Ackman

  • Bill Ackman hopes to close his huge SPAC deal in the next couple of weeks.
  • The Pershing Square chief is hedging against inflation and a market correction.
  • Ackman switched Starbucks stock for Domino’s Pizza based on valuation and likely upside.
  • See more stories on Insider’s business page.

Billionaire investor Bill Ackman hopes to close his mega-SPAC deal in the next couple of weeks, continues to hedge against inflation and a potential market downturn, and swapped out Starbucks for Domino’s Pizza in search of higher returns, he said on an earnings call this week.

Ackman’s “blank-check” company, Pershing Square Tontine Holdings, floated last summer with the goal of spending about $5 billion for a minority stake in a private company and taking it public. The investor revealed earlier this month that he’s been working to buy a piece of an “iconic, phenomenal, great business” since early November, and was close to sealing the deal.

“We’ve done our homework, we like the business, we love the management team, and we are working to complete a transaction,” Ackman said this week. “Hopefully within a couple of weeks or so.”

If the deal falls through, Ackman and his team will turn their attention to a second target, he added.

Ackman, who made a $2.6 billion profit by hedging the pandemic last spring, also weighed in on growing inflation fears and the steps he’s taken to protect his portfolio. He pointed to multiple government-stimulus packages over the past year, and the prospect of pent-up demand being released and savings being spent as the economy reopens, as drivers of higher prices that could spur the Federal Reserve to hike interest rates. That represents a “risk for markets generally,” he said.

The uncertain backdrop prompted his fund, Pershing Square Capital Management, to spend $157 million on interest-rate “swaptions” between December and early February. The position’s value – which ballooned to almost $500 million by the end of March – is still up about 2.5 times, Ackman said.

The Pershing chief also elaborated on why his fund sold a 1% stake in Starbucks and snapped up more than 5% of Domino’s – a position valued at about $750 million as of March 31 and $860 million today. The move was driven by price and potential upside, he said.

“We’re always willing to trade an existing holding at a kind of full valuation for a business of similar quality at a much more attractive valuation,” Ackman said. “That was the thinking behind the switch.”

The investor and his team determined that Starbucks was likely to generate returns in the low double digits, while Domino’s promises long-term returns in the high teens or low 20s, he added.

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Billionaire investor Bill Ackman swapped out Starbucks for Domino’s Pizza last quarter – and trimmed 5 of his 6 other holdings

Bill Ackman
Bill Ackman.

  • Bill Ackman’s hedge fund sold Starbucks and bought Domino’s Pizza last quarter.
  • The billionaire investor pounced when the pizza chain’s stock slumped in March.
  • Pershing Square trimmed its Agilent, Chipotle, Hilton, and Restaurant Brands bets.
  • See more stories on Insider’s business page.

Billionaire investor Bill Ackman swapped out Starbucks for Domino’s Pizza and trimmed all but one of the other holdings in his stock portfolio last quarter, a regulatory filing revealed this week.

Ackman’s Pershing Square Capital Management sold its almost 1% stake in Starbucks, which was worth $1.1 billion at the end of December. The hedge fund also bought more than 5% of Domino’s Pizza – a position valued at about $750 million as of March 31.

Ackman explained the move at a recent Wall Street Journal event. Starbucks stock had rebounded faster than expected, he said, while Domino’s stock slumped in March to its lowest since the pandemic tanked markets last spring.

“We’ve admired it for years, and it was just never cheap enough,” Ackman said about the pizza-delivery chain. “Then for about five minutes, it got cheap. I don’t know who sold or why, but we started buying around $330 a share, and then very quickly it moved up a lot.”

Pershing’s newest position has jumped in value by another 18% since March 31, to over $880 million as of Monday’s close.

Ackman and his team also reduced their stakes in Agilent, Lowe’s, Hilton, and Restaurant Brands by 3% to 4%, and their Chipotle stake by around 6%. In contrast, they boosted their Howard Hughes position by about 23% to 13.5 million shares.

Pershing’s stake in Lowe’s was worth $2.3 billion at the end of March, making the home-improvement retailer its most valuable holding. Its Agilent, Chipotle, Hilton, and Restaurant Brands positions were worth about $1.5 billion each, while its Howard Hughes stake was valued at $1.3 billion. The overall value of its stock portfolio grew 5% to $10.5 billion.

Ackman’s next major update could be related to his $5 billion special-purpose acquisition vehicle, Pershing Square Tontine Holdings. The investor is hoping to announce a deal to buy a minority stake in an “iconic” private business in the next few weeks.

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Billionaire investor Bill Ackman hopes to close his mega SPAC deal within weeks – and called his target an ‘iconic’ business

bill ackman
Bill Ackman.

  • Bill Ackman is hoping to close his massive SPAC deal in the next few weeks.
  • The investor trumpeted his chosen target as an “iconic, phenomenal” business.
  • Ackman’s PSTH vehicle has been working to buy a piece of it for six months.
  • See more stories on Insider’s business page.

Bill Ackman hopes to close his mammoth blank-check deal in a matter of weeks, he revealed at The Wall Street Journal’s “The Future of Everything Festival” on Wednesday.

The billionaire investor said his team has identified an “iconic, phenomenal, great business with a great management team that meets all of our criteria.” They have been working since early November to buy a piece of it, he added.

The hedge fund manager listed Pershing Square Tontine Holdings, a special-purpose acquisition company or SPAC, on the stock market last summer. Its goal is to spend about $5 billion for a minority stake in a private business and take it public.

The nature of its chosen target, the complexity of the transaction, and various other issues have delayed the process, the Pershing Square Capital Management boss said. However, he believes the company in question is so attractive and interesting that it will be “worth the energy and the effort.”

Ackman reiterated that PSTH’s goal is to buy a “super-high quality, durable, growth business.” He paraphrased a famous quote by his mentor Warren Buffett to make his point.

“What we’re looking for is a business that you can own for the next decade,” Ackman said. “The stock market could shut and you would have enormous confidence the business would be worth multiples of the price you pay today.”

Ackman now believes he’s close to securing a stake in that kind of company, but cautioned the deal could still collapse. “We’re either gonna get a transaction done in the next relative short term – weeks – or we’ll be onto the next one,” he said.

The Pershing Square chief made other notable comments at the virtual festival. His hedge fund has sold its Starbucks stake and bought about 6% of Domino’s Pizza, he revealed.

Ackman also cautioned that the recent spike in inflation might not be temporary, and predicted the Federal Reserve will raise interest rates. Moreover, he described cryptocurrencies as a “brilliant technology” but said he wasn’t comfortable owning a meaningful amount of them.

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