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June 7, 2021
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Pershing Square
On Friday, Bill Ackman's $4bn SPAC, Pershing Square Tontine Holdings (PSTH) announced that it is in discussions with French media conglomerate Vivendi to acquire 10% of the outstanding shares of Universal Music Group ("UMG"). PSTH stockholders that stick around will end up with shares in UMG, which Vivendi already planned to spin out into a listing on Euronext Amsterdam in Q3 2021.

The announcement, which is not yet a definitive agreement, provides more questions than answers. Here's what we do know: Pershing's $4bn cash contribution would value UMG at an enterprise value of €35 billion (or approximately US$42.5bn). PSTH plans to offer redemption rights via tender offer rather than holding a shareholder meeting to vote upon the transaction. And continuing PSTH shareholders will own the following three things, assuming they don't tender their shares for ~$20 each:
  • A pro-rata portion of the UMG shares purchased in the deal, representing approximately $14.75 of notional value per share of PSTH at the deal price.
  • A pro-rata portion of cash that's going to remain in PSTH (or approximately $5.25 per share), which will live in a successor called PSTH "Remainco."
  • A tradeable right ("SPAR"), that will entitle shareholders to purchase a share of another successor acquisition vehicle known as Pershing Square SPARC Holdings, Ltd. ("SPARC").
The deal isn't yet definitive and so all of the pieces are subject to change. But there's a huge amount of uncertainty here. Earlier this year, the Eagle SPAC team tried to issue Spinning Eagle Acquisition Corp., which would've allowed that SPAC to segregate its trust into two pieces: one with which to execute an initial business combination and one that could roll remaining proceeds into a successor vehicle. That proposition was rejected by regulators and it's not clear if Pershing has secured any sort of regulatory approval for either the Remainco concept or for its SPARC innovation.

The announcement claims that because PSTH will have already consummated an initial business combination, Remainco will no longer be considered a SPAC according to NYSE listing rules. Remainco may not have any liquidation clock, and SPARC would have a five year (extendable) window for its own deal.

It's not hard to imagine the appeal for Ackman of holding onto two successor entities. PSTH's first deal may have failed to simply acquire a mature unicorn, but Pershing will still be able to use its remaining vehicles to continue hunting. And as Bloomberg's Matt Levine pointed out on Friday, it's likely easier to hang onto remaining trust funds than to raise new ones right now.

The SPARC structure is a fascinating novelty. Each SPAR will allow its owner to buy in for $20 per share after a deal announcement. The concept is sort of a SPAC in reverse; instead of tying up cash in trust initially, SPAR holders can choose to fund the acquisition on the back end, just in time for the deSPAC. Pershing Square intends to continue as a forward purchaser for both vehicles. Will it be more challenging for Ackman to convince operating companies he can deliver large amounts of public capital without having the money in a trust account first? It's hard to speculate at this point, but the price the market assigns to the SPARs once they're freely traded may provide some clues.

In general, complexity can be the enemy of success. Many other sponsors might be laughed out of the room if they delivered this much convolution along with a deal announcement. But Ackman has a cult following and the acquisition here is fairly iconic, with UMG representing a host of well-known artists. Pershing also intends to execute $1.6bn worth of forward purchase commitments for UMG shares -- an amount that closely matches the $1.5bn balance that will remain with PSTH Remainco instead of going to UMG.

You might also notice that there's no PIPE involved with this deal. All funds not connected with PSTH's trust account are coming from Pershing Square's forward purchase agreement. And while PSTH's shares sold off on Friday's news, there's something to be said for a sponsor putting large amounts of its own capital to work alongside public shareholders.

And what about Pershing's sponsor warrant? One of PSTH's core innovations was to align its promote structure so that Pershing only got paid if its acquisition target performed well. The UMG transaction hasn't finalized the treatment of Pershing's sponsor warrant yet. But it's not that hard to imagine Pershing reducing or eliminating the sponsor warrant's participation in UMG and also retaining its unique upside characteristics for whatever deal Remainco eventually finds.

Meanwhile, after a lot of fanfare about Pershing's unique tontine warrant structure (which we covered last year), the company intends to launch an exchange offer for the outstanding detached/freely traded warrants (as contemplated in the SPAC's IPO prospectus). Warrantholders would receive approximately 0.2375 shares per warrant if PSTH common stock trades at $20 around deal closing. But PSTH stockholders who don't redeem (and thus will share in the pool of tontine warrants) will get their tontine warrants after the stock tender. No PSTH warrants will be exercisable for shares of UMG so it appears that Pershing intends for the tontine warrants to only apply to Remainco. And any already-detached warrants that are not exchanged will also stick around with Remainco, with a strike price adjustment.

PSTH was already the largest SPAC ever, and in lieu of a single megadeal, Ackman is looking to parlay the vehicle into a potentially perpetual deal machine. The SPAC as originally designed was a leader in a trend toward better aligned sponsor lockup and earnout terms. But it's possible that with this deal configuration, alignment is getting sacrificed in favor of greater sponsor control.

There's a lot of complexity here and we'll have to wait to find out if the details get finalized as-is. Only time will tell both if shareholders embrace the deal, and if regulators have anything to say about the unique structures proposed.

News From the Past Week

Deal News

  • Alkuri Global Acquisition Corp. (KURI) announced a deal to acquire Babylon, a digital-first, value-based healthcare company. The deal reflects an enterprise value of $3.6bn and includes a $285mm PIPE with investors including AMF Pensionsförsäkring, Sectoral Asset Management and Swedbank Robur. The transaction is expected to close in Q3 2021.

  • GigCapital4, Inc. (GIG) announced a deal to acquire BigBear.ai, a "decision dominance" company serving the national defense and intelligence communities. The deal reflects an enterprise value of $1.6bn and includes a $200mm PIPE with investors including Fortress Investment Group, Marathon Asset Management and Highbridge Capital Management. The transaction is expected to close in Q3 2021.

  • Pershing Square Tontine Holdings, Ltd. (PSTH) is in discussions to acquire 10% of Universal Music Group for approximately $4bn. Shareholders will retain $5.25 per share in “PSTH Remainco,” which will pursue another business combination after the proposed transaction, and will also receive the right to invest in another Pershing-sponsored acquisition vehicle.

  • Northern Star Acquisition Corp. (formerly STIC) closed its acquisition of BARK on Tuesday 6/1/2021. Redemption statistics were not provided. Ordinary shares and warrants are now trading on the NYSE as “BARK” and “BARK/WS.”

  • TS Innovation Acquisitions Corp. (formerly TSIA) closed its acquisition of Latch, Inc. on Friday 6/4/2021 with less than 1% of public shares exercising redemption rights. Ordinary shares and warrants will begin trading on the NASDAQ as “LTCH” and “LTCHW” on Monday 6/7/2021.

  • Jaws Acquisition Corp. (formerly JWS) closed its acquisition of Cano Health on Thursday 6/3/2021. Redemption statistics were not provided. Ordinary shares and warrants are now trading on the NYSE as “CANO” and “CANO/WS.”

  • Juniper Industrial Holdings, Inc. (JIH) shareholders approved the company’s acquisition of Janus International at a meeting Thursday 6/3/2021 with less than 1% of public shareholders exercising redemption rights. No closing timeline was given.

  • GigCapital2, Inc. (GIX) shareholders approved the company’s acquisition of UpHealth and Cloudbreak at a meeting Friday 6/4/2021. Redemption statistics were not provided and no closing timeline was given.

  • Deerfield Healthcare Technology Acquisitions Corp. (DFHT) shareholders approved the company’s acquisition of CareMax Medical Group and IMC Medical Group Holdings on Friday 6/4/2021 with no public shareholders exercising redemption rights. The transaction is expected to close on Tuesday 6/8/2/2021 with ordinary shares and warrants trading on the NASDAQ under the tickers “CMAX” and “CMAXW” beginning Wednesday 6/9/2021.

  • TechCrunch reported that Reinvent Technology Partners Y (RTPY) is in talks with autonomous vehicle startup Aurora.


New S-1's
  • GoGreen Investments Corporation (GOGN) $250mm
  • L Catterton Latin America Acquisition Corp (LCLA) $200mm
  • M3-Brigade Acquisition IV Corp. (MBD) $200mm
  • Social Capital Suvretta Holdings Corp. I (DNAA) $200mm
  • Social Capital Suvretta Holdings Corp. II (DNAB) $200mm
  • Social Capital Suvretta Holdings Corp. III (DNAC) $200mm
  • Social Capital Suvretta Holdings Corp. IV (DNAD) $200mm
  • Mount Rainier Acquisition Corp. (RNER) $150mm
  • Northern Lights Acquisition Corp. (NLIT) $100mm
  • UK Wisdom Limited (UKWI) $50mm
IPOs

  • None

Upcoming Meetings and Deadlines
  • 6/7/2021 FSRV Katapult approval meeting
  • 6/8/2021 ARYA Nautilus Biotechnology approval meeting
  • 6/9/2021 THBR indie Semiconductor approval meeting
  • 6/9/2021 CAPA Quantum-Si approval meeting
  • 6/10/2021 CCX Skillsoft and Global Knowledge approval meeting
  • 6/10/2021 VGAC 23andMe approval meeting
  • 6/10/2021 SSPK WM Holding approval meeting
  • 6/11/2021 ACTC Proterra approval meeting
  • 6/15/2021 FAII ATI Physical Therapy approval meeting
  • 6/16/2021 CRSA LiveVox approval meeting (liquidation deadline 6/30/2021)
  • 6/17/2021 ACAC PLAYSTUDIOS approval meeting
  • 6/17/2021 HECC Talkspace approval meeting
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