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

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  • 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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Bill Ackman’s PSTH scraps Universal Music deal after SEC pushback -but the billionaire investor is still buying a stake

Ackman, Bill Ackman
Bill Ackman.

  • Bill Ackman’s PSTH won’t buy 10% of Universal Music for about $4 billion after SEC pushback.
  • The billionaire investor’s Pershing Square funds will purchase a stake in Universal instead.
  • PSTH now plans to pursue a conventional SPAC transaction.
  • See more stories on Insider’s business page.

Bill Ackman has scrapped his plan to buy 10% of Universal Music for $4 billion using his special-purpose acquisition company (SPAC) after federal regulators poured cold water on the proposed transaction, the billionaire investor told Pershing Square Tontine Holdings (PSTH) shareholders in a letter on Monday.

PSTH will transfer its share-purchase agreement to Ackman’s Pershing Square company and its affiliates, the investor wrote. That way, he still becomes a shareholder and Universal-owner Vivendi won’t be “left at the altar,” he added.

The SPAC’s board unanimously decided on Sunday to ditch the Universal deal after speaking to the SEC and realizing the agency would probably nix it. PSTH’s directors will now focus on completing a conventional SPAC deal, and have 18 months to close one unless shareholders vote for an extension.

Ackman was caught off guard by the backlash from some PSTH shareholders to the complexity and structure of the original deal, he noted in his letter. The investor also underestimated its potential impact on investors who can’t hold foreign securities, margin their shares, or own call options on PSTH stock, he added.

Before the SEC dashed his hopes, Ackman envisaged PSTH shareholders receiving Universal shares after Vivendi takes the division public this September, continuing to own PSTH stock while the SPAC sniffs out a merger free of the usual time constraints, and securing rights to buy shares in a new investment vehicle called a SPARC once it agrees its own transaction.

PSTH’s withdrawal from the Universal deal will disappoint some of Ackman’s fans, who spent seven months speculating about the identity of his acquisition target. Others who weren’t thrilled at the Universal deal might welcome the SPAC hitting the reset button on its search.

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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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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.
  • Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

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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