Analysis: SPAC u-turn mars pivot of Ackman’s hedge funds


William Ackman, Founder and CEO of Pershing Square Capital Management hedge fund, speaks at the Sohn Investment Conference in New York, May 4, 2015. REUTERS / Brendan McDermid

July 20 (Reuters) – He was poised to be the brilliant backbone of William Ackman, from activist hedge fund manager to leading trader. This ended up poisoning his rebranding.

Ackman launched a $ 4 billion Special Purpose Acquiring Company (SPAC) last year, the largest blank check acquiring company ever raised. With the backing of his investors and available bank debt, he amassed enough firepower to bring a company worth tens of billions of dollars to the stock exchange.

Last month, however, Ackman revealed plans to buy a 10% stake in Universal Music Group, which its owner Vivendi SA (VIV.PA) was already planning to turn into a state-owned company.

Shareholders of its SPAC, Pershing Square Tontine Holdings Ltd (PSTH.N), would receive Universal shares after the music label’s IPO was completed and would not get a vote. Tontine would continue to seek another deal, with $ 1.5 billion in capital remaining to be deployed. Tontine investors would also receive warrants in a new blank check company started by Ackman that would pursue another deal, yet to be determined.

Ackman’s financial engineering turned out to be too much for Tontinian investors and US regulators. Tontine’s shares fell 18% in the weeks after the deal was announced. The United States Securities and Exchange Commission rejected the deal, arguing that it would not comply with New York Stock Exchange rules, Ackman said.

On Monday, Ackman changed direction on SPAC as criticism of his moves increased.

He will now replace Tontine in the deal with his hedge fund vehicles and seek co-investments from other outside investors to complete a transaction he concluded during a handshake with the French businessman. Vincent Bolloré last month. Sources close to his thinking have said he expects investments in the new co-investment vehicle to be oversubscribed.

But three longtime Pershing Square investors said they were skeptical that pension funds, family offices and sovereign wealth funds would step up. They spoke on condition of anonymity due to the deals they signed with Pershing Square.

When Ackman offered his old co-investment vehicles to investors in companies like Automatic Data Processing Inc and Air Products and Chemicals, the allure was the potential of the stock once Ackman’s position went public. That won’t be the case now, as the deal valuing Universal Music Group at $ 35 billion is already known and, according to some Ackman critics, overpriced.

“He made a switcheroo by announcing an investment in a company instead of a merger to take a company public that many investors didn’t like,” said Erik Gordon, professor of law and business at the University of Michigan on the Universal Music Accord.

Ackman declined to comment.

Ackman is forced to invest $ 2 billion and may invest up to $ 4 billion in Universal Music Group, which owns the rights to artists ranging from Taylor Swift to Drake. Potential investors have yet to see the terms of what would be Pershing Square’s seventh co-investment vehicle.


The past few years have set records at New York-based Pershing Square Capital Management, with Ackman posting returns of 70.2% in 2020 and 58.1% in 2019. The successes followed double-digit losses in 2015 and 2016 and smaller declines in 2017. and 2018. Turning its back on the stumbles at Valeant and Herbalife, Ackman adopted a back to basics theme by ending visits from investors who were eating up his time and wasting time. squatting at the desk doing research.

Two years ago, Ackman told clients that his hedge fund would transform into a holding company with stakes in public companies and offering a helping hand to struggling management teams to resurrect once strong returns.

This year, Pershing Square Holdings returned 6.5% while the Standard & Poor’s 500 Index gained around 15%.

“Some investors will stick with Ackman, of course, because they’ve seen him goof before and then buckle up and win again,” said Gordon of the University of Michigan.

Reporting by Svea Herbst-Bayliss; Editing by Lincoln Feast.

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