Pershing Square Tontine Holdings: Huge SPAC With Great Sponsor And Upcoming Catalysts To Re-Rate
Summary
- Pershing Square Tontine Holdings is the biggest SPAC out there.
- It is facing a lawsuit and trying to convert into a SPARC.
- Many people are disappointed it didn't get to take Universal Music Group public.
- Meanwhile, catalysts are coming up and the SPAC (and warrants to a degree) are languishing.
- This idea was discussed in more depth with members of my private investing community, Special Situation Report. Learn More »
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Last week I listened to the Pershing Square Holdings (OTCPK:PSHZF) quarterly call. It was interesting to hear the Pershing team talk about Universal Music Group (OTCPK:UMGNF) and some of the other holdings. Very importantly; Ackman addressed Pershing Square Tontine Holdings' (PSTH) go-forward strategy. In this article, I'm thinking through the implications and which of its securities is more attractive. This article will deal with PSTH but I also find PSH very attractive and have written so publicly here. Ackman said Pershing could be filing a prospectus with the SEC for a Pershing Square SPARC soon. If I heard correctly, as soon as this Wednesday but likely before mid-December.
The idea is to give each PSTH shareholder money back and a warrant for Pershing Square SPARC. Each warrant holder in PSTH would receive two warrants in Pershing Square SPARC.
The strike price of this new warrant would be $10. Interestingly, Ackman suggested the strike would be adjustable. They could use the strike to adjust and raise more or less money depending on the deal at hand. We'll have to wait for the prospectus to see how it works exactly. According to Ackman, this innovation makes SPARCs more flexible to meet the needs of targets for liquidity.
PSTH jumped to $20.25 after the call, but the news doesn't seem to have been digested completely. If you get $20 back and a SPARC warrant that implies a SPARC warrant is worth about $0.25. The PSTH warrants should be worth only $0.50 if that were the case. However, they trade at $2.14.
But this is all speculation about how things may look once Ackman actually gets this filed AND it still needs approval.
One interesting detail; if you exercise the SPARC warrant (and put your money in the actual deal once it goes up), you'll get a free SPARC on the next deal as well.
Reddit SPAC doesn't seem to like the idea:
Source: Reddit
Ackman also said the lawsuit against PSTH is an overhang. This is a lawsuit claiming Pershing Square Tontine Holdings is an investment company. I've addressed it here. I'm not a lawyer but personally, I'd think it can't stop a deal. It apparently makes it more difficult to get one done though.
He said something pretty interesting regarding the suit; he doesn't believe the lawsuit will stop THE transaction. He corrected himself by following up with "To the extent that we have one to propose to shareholders".
Later on, I think he may have wanted to water down his slip a bit more, Ackman said something along the lines of: "we have one thing that's interesting but nowhere near executability."
He summarized PSTH's position by outlining a "best-case scenario" where they announce a deal shortly and get the SPARC sorted out afterward.
If they could announce a deal shortly, how is that nowhere near executability?
My key things to take away here:
If you exercise the (potential) SPARC, you get a replacement SPARC. This indicates Pershing Square Holdings is becoming a perpetual deal machine. With endless inflow of sponsor cuts into (hopefully) Pershing Square Holdings.
Ackman may have a deal lined up to announce as soon as possible after he gets the SPARC done, if he doesn't get the SPARC done, or even before he gets the SPARC done.
PSTH warrants get 2 new warrants instead, according to Ackman on the PSHZF call.
Whether it is better to buy PSTH shares or warrants (if any) depends on how you think about the probabilities of different scenarios. But at $20.25/share and $2.10 for a PSTH warrant, the former seems the better choice to me.
Out-of-the-money calls seem atrocious. I could be interested to sell out-of-the-money covered calls if the premium went up. With traders still disinterested, I'll probably refrain from selling calls against my long position until things heat up further.
I write the Special Situation Report. I look at special situations like spin-offs, share repurchases, rights offerings and a lot of M&A events. The point is to make money with risks under control. Check it out here. Follow me on Twitter here or reach out through email at dehaas.bram at gmail dot com.
This article was written by
I gravitate towards special-situations. That means situations around companies or the market where the price can move in a certain direction based on a specific event or ongoing event. This eclectic and creative style of investing seems to suit my personality and interests most closely.
Since 2020 I host a podcast/videocast where I discuss (special-situation/event-driven) market events and investment ideas with top analysts, portfolio managers, hedge fund managers, experts, and other investment professionals. I highly recommend it (pick episodes around topics that interest you) for the amazing guests that come on with regularity.
I've been writing for Seeking Alpha since 2013 after playing p$ker (I'm not that immature but the real word gets censored) professionally. In 2018 I founded Starshot Capital B.V. A Dutch AIF manager. Follow me on Twitter @Bramdehaas or email me Dehaas.Bram at Gmail
Disclosure: I/we have a beneficial long position in the shares of PSTH, PSHZF either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.