Is Star Power Enough for Pershing Square Tontine Holdings?

If it weren’t for the novel coronavirus disaster, 2020 could have been known as the year of the SPAC, or special purpose acquisition company. An alternative to the initial public offering, many electric vehicle manufacturers found themselves utilizing this method to enter the capital market. But for those tired of sifting through various EV plays, Pershing Square Tontine Holdings Ltd (NYSE:PSTH) may give you some relief. As far as we know, PSTH stock isn’t an EV play.

A man holding two puzzle pieces surrounded by more, smaller puzzle pieces. SPAC IPOs
Source: Pasuwan/ShutterStock.com

According to InvestorPlace contributor Mark Hake, there are growing rumors that Pershing Square – activist investor and hedge fund manager Bill Ackman runs the company that’s sponsoring the SPAC – will use this financial vehicle to buy shares of Bloomberg LP. Further, Hake points out that the SPAC went public on July 22 with a share price of $20 and PSTH stock has gained significantly on the Bloomberg speculation.

As well, this SPAC is fiscally healthy, lending much confidence to prospective buyers. It has just over $4 billion sitting in the bank. Along with Ackman’s two hedge funds, a public firm named Pershing Square Holdings (OTCMKTS:PSHZF) represent the SPAC’s sponsors. They have also pledged to put a minimum of $1 billion into the venture.

To be clear, the Bloomberg buyout is a rumor, with the media and software giant denying any deal with Pershing Square Tontine Holdings. Specifically, though, Bloomberg founder Michael Bloomberg is reportedly considering selling up to 20% of his $60 billion company. So, make of that what you will.

From my perspective, our own David Moadel hit the nail on the head in that PSTH stock is a “bet on the jockey, if not the horse.” Bill Ackman is a smart man and he presumably wouldn’t rush into a dumb deal. But as Moadel notes, it’s not just belief in Ackman that’s intriguing speculators.

Indeed, Shark Tank’s Kevin O’ Leary – otherwise known as Mr. Wonderful – believes that Ackman is on the right track because of his business smarts and successful track record. But does that PSTH stock a buy?

Assuming a Bloomberg Deal, Be Careful with PSTH Stock

Depending on your specific strategy with this SPAC, Pershing Square Tontine may or may not be appropriate. On the positive end, SPACs have been incredibly profitable in the last year. Once a deal becomes official, often the entity skyrockets, even if nothing else fundamentally changed much.

Of course, the risk to PSTH stock is that we don’t know what speculators will be investing in. Therefore, if it’s not something to most people’s liking, this could be the SPAC that crumbles. However, to Moadel’s point, we know who they’re investing in. Surely, you’d assume that Ackman realizes the high-profile nature of this SPAC and will have due “diligenced” accordingly.

But for argument’s sake, let’s assume that Ackman acquires the aforementioned equity share of Bloomberg. Would that be a smart move for PSTH stock over the long run?

To be sure, media companies are less exposed to cyclical volatility than other industries. As well, Bloomberg utilizes a subscription-based business model that theoretically limits its exposure to advertisement-related revenue disruptions. And let’s not forget that Bloomberg caters to wealth investors, who will likely want to know where to park their money in a downturn.

Still, that alone may not insulate PSTH stock from all the slowdowns associated with a potential recession (or depression). First, Capitaliq.com rightly points out that “the media industry remains vulnerable to economic cycles as advertising is strongly correlated to GDP and an integral part of the industry. Lest anyone forget, many media companies survived the great recession of 2008 during which advertising dropped precipitously by halting share repurchases, and in some cases, slashing dividends.”

Moreover, according to a survey conducted by eBizMBA, Bloomberg didn’t rank in the top 15 most popular news websites in August of last year. By keeping to its guns on the subscription model, Bloomberg may have trouble attracting new readers during an economic downturn.

Don’t Count on a Bailout by the Rich

If we don’t have a major calamity in the years ahead, I can definitely see the value in PSTH stock and the theoretical Bloomberg deal. For instance, if we have the Roaring 2020s that MoneyWire editor Matt McCall has frequently stated will occur, then people will pay a premium for well-research information.

Information is power in this age and Bloomberg is right up there with the best of them.

However, if we do suffer a cataclysmic crisis, then please keep in mind that media subscriptions are one of the easiest costs to cut. And this isn’t a theoretical dynamic. According to the New York Times, the rich cut their spending the most during this pandemic, which has negatively affected many service workers who cater to them.

As well, Encyclopedia.com reminds us that “The onset of the Great Depression in late 1929 hit the newspaper business hard largely due to a major decline in advertising revenue. Loss of the revenue meant less money for wages for employees and less money for production costs. Between 1929 and 1933 advertising revenue decreased by approximately 40 percent.”

To say the least, that’s a sobering thought. Therefore, if you’re going to gamble on PSTH stock, I’d do so carefully. The business that this SPAC is possibly buying into won’t be completely immune in a downturn. And the easy money SPACs may run out of steam.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.


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