Ackman’s un-SPAC elicits a shrug from investors

Ackman, CEO of Pershing Square Capital, speaks at the WSJ Digital Conference in Laguna Beach
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

LONDON, June 24 (Reuters Breakingviews) - Bill Ackman’s online acolytes are unfazed by the dwindling premium attached to the billionaire's Pershing Square Tontine Holdings (PSTH.N) vehicle. Self-described Tontards swap memes on Reddit glorifying the investor they call “daddy”, while a sock puppet proffers an expletive-ridden sum-of-the-parts valuation. Yet PSTH shares suggest Ackman’s unconventional special purpose acquisition company has lost its shine.

The hedge fund boss detailed the state of play during an investor call on Wednesday. Ackman's SPAC has agreed to buy 10% of Universal Music from Vivendi (VIV.PA). PSTH owners will get about $14 worth for each of their shares, based on the $40 billion acquisition valuation. The SPAC will have $1.6 billion of cash left, equivalent to about $5.70 per share, and will stay listed while it finds a second target. Finally, for each PSTH share, Ackman is offering a tradable right to invest $20 in another vehicle dubbed a special purpose acquisition rights company, or SPARC.

A SPARC, like a SPAC, is designed to find a merger target. The novelty is that investors only stump up after a deal is identified, so they needn't lock up funds in advance. The digital disciples love it. Bill Sockman, the puppet, expects SPARCs to give the faithful perpetual access to private companies at discount valuations.

PSTH promised that, too. The vehicle traded at an average premium of 27% to its cash, unusually for a SPAC, between its September float and when Ackman unveiled the Vivendi deal. Deduct the Universal distribution and the remaining cash from its $23 share price and there’s roughly $3 per share left. That implies a reduced 12% premium to net asset value across both a follow-on PSTH deal and a future SPARC transaction. Substitute a higher value for Universal, which JPMorgan reckons could be worth almost $60 billion, and PSTH's share price implies no Ackman magic at all.

One explanation, propounded by Sockman, is that shareholders don’t appreciate what they are getting. Alternatively, the market may just be rating Ackman’s dealmaking as merely average. Dashed hopes of a more dramatic outcome than a slice of Universal Music may explain why PSTH shares have underperformed the IPOX SPAC Index by 7 percentage points since it announced the deal – and why only Ackman’s hardcore fans are excited about a sequel.

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- Billionaire investor Bill Ackman said on June 23 that he could envision a stock listing for Universal Music in the United States after it lists in Amsterdam this September, if the company's board agrees.

- Ackman's Pershing Square Tontine Holdings is buying 10% of the music label from French parent Vivendi at a $40 billion overall equity value. Universal’s catalogue includes the Beatles, Taylor Swift and others.

- Ackman was speaking on a conference call with investors, and said that he saw no legal or regulatory restrictions that would prevent a dual listing, and that this could happen either through a direct listing on the NYSE or Nasdaq, or through sponsored American Depositary Receipts.

Editing by Richard Beales and Karen Kwok

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