Well that escalated quickly. Just days after being sued by a disgruntled shareholder who alleged that Bill Ackman’s special purpose acquisition company, Pershing Square Tontine Holdings Ltd., is an illegal investment company, the billionaire hedge fund manager is asking for a do-over.
On Thursday he wrote to long-suffering SPAC shareholders to say he’d like to return the $4 billion of cash they put in his blank-check firm, the largest ever. While he firmly rejects the allegations in the lawsuit, he says it complicates the task of completing a deal in the available time.
It’s not often someone goes to the trouble of raising $4 billion and then turns around and says: On second thought, you can have the money back.
But Ackman’s not giving up entirely. He’s offering unhappy Pershing Square Tontine shareholders a tradable right to participate in a future Ackman deal via what he’s called a SPARC—a special purpose acquisition rights company. That’s provided, of course, the U.S. Securities and Exchange Commission and New York Stock Exchange go along with the proposed structure.
Many retail investors remain furious with Ackman. They were convinced his blank-check firm would serve up a juicy technology deal. Instead, all they may end up getting is their $20 per share in cash back, plus an option to participate in some unknown future transaction.
Confidence that Ackman can pull off a high-caliber deal took a hit after the SEC raised objections to his blank-check firm buying shares in Universal Music Group. Hence, it’s not clear yet how much value investors will ascribe to the SPARC.
On balance, I think it’s worth a try. Pershing Square Tontine now has too many clouds hanging over it and shareholders don’t have much more to lose. Although it’s not exactly a fresh start owing to the continued risk of legal bother, it’s at least a path forward.
But it’s odd that Ackman decided a lawsuit he deems meritless is an insurmountable obstacle to completing a regular SPAC deal with its $4 billion pot of cash. While legal uncertainty may have put off potential merger suitors, there may have been other factors playing on Ackman’s mind.
Pershing Square Tontine warrants—rights to purchase shares at an agreed level—once traded at nearly $18. Currently, they’re languishing at less than $3. If the SPAC fails to complete a deal due to prolonged legal rancor, those warrants would be at “grave risk.” Holders now at least have an opportunity to realize some value as they’ll also get a SPARC warrant.
Meanwhile, the SPAC’s shares recently fell below the $20 per-share value of the cash it holds for the first time, a level at which shareholders might be motivated one day to demand their money back anyway.