One could forgive shareholders for wanting to have nothing further to do with Ackman. Those who bought shares at February’s peak have lost about 40% of their investment. Even those who bought at the $20 issue price would have done much better just putting their money in a regular index fund.
All this doesn’t mean the SPARC is necessarily a bad idea. Right now a lot of SPACs are paying underwriters to raise cash in an IPO, and then seeing massive cash redemptions when they close a transaction. This is hugely inefficient and adds to the costs incurred by those shareholders who don’t opt to redeem. Far better for sponsors to find a company to buy and then persuade shareholders to fund it, as Ackman is proposing.
The SPARC also wouldn’t be under pressure to find a deal within the two year limit blank-check firms typically have, which critics say can lead them to strike poor transactions. Shareholders’ cash also wouldn’t be locked up for so long.
There are still lessons here for Ackman. The transaction he attempted with with Universal Music was too byzantine. Even now he seems enamored by such complexity: The SPARC will require a New York Stock Exchange rule change and sign-off from the SEC. Currently having tradable warrants also requires the shares into which those warrants are converted to be listed too, which they wouldn’t be in Ackman’s conception until a transaction is agreed.
Only Ackman would quit and double down all at the same time.
Chris Bryant is a Bloomberg Opinion columnist covering industrial companies. He previously worked for the Financial Times.