Since hedge fund investor Bill Ackman launched his Pershing Square Tontine Holdings (NASDAQ:PSTH), speculation has run rampant about what he might buy and how it will affect PSTH stock.
PSTH is a special purpose acquisition company (SPAC). That is, it’s a blank-check company, an empty suit, a pile of cash waiting to pounce on a private company and take it public.
Buying a SPAC before it announces a target is like playing the game show Let’s Make a Deal. As Monty Hall taught me, and Wayne Brady has taught your kids, you choose among options sight-unseen and take what you get.
In this case, the only hint we have is Ackman’s track record. His up-and-down career has included the Herbalife (NYSE:HLF) short, a bad bet on Valeant, but big wins on the pandemic , shopping malls and railroads.
What Might Bill Buy?
Pershing Square Tontine was launched last July with $4 billion of investor money. (A tontine combines a group annuity with a macabre bet on which of its investors will die last.) PSTH isn’t really a tontine, but it has until July 2022 to make a deal or it will be wound up.
Since July there have been failed efforts to get into Airbnb (NASDAQ:ABNB) and Stripe, which will do its own IPO. PSTH has also been rumored to be buying into Bloomberg, as founder Michael Bloomberg is nearing 80 and might want to cash out.
But what has PSTH actually done? Nothing. For now, public investors can only buy and sell rumors. Since the start of 2021 that has given the shares a loss of 6%. But the points don’t matter because no one knows what they’re buying or selling.
Reading the Tea Leaves
The hint is an Ackman retweet, of Mongolian kids heading into school. The idea, as our Sarah Smith reported, is that Starlink could deliver broadband internet to such places. PSTH has issued a press release suggesting investors follow Ackman’s account on Twitter (NYSE:TWTR).
Our Tom Taulli recently ran through a list of possible targets. These range from the gas station chain Wawa to the home improvement retailer Menards to the online community Reddit.
As the example demonstrates of Churchill Capital IV (NASDAQ:CCIV), which is getting just 16% of Lucid Motors, Ackman could go after a private company of any size. It could be profitable or unprofitable, an operating company or a startup.
That’s why his relationship with Musk is newsworthy. Even after a target is announced, investors need to look carefully at how much of the target they’re getting. There will be a share for you, a share for Ackman, and a big share for the target, whose investors will get to cash out through the public markets. Whether the target needs the capital is another unknown.
The Bottom Line
If I were interested in doing business with Ackman, I’d find the cash to invest in Pershing Square directly.
The fact is I’m not. There is nothing more limited than a limited partner, and that’s what you are when you invest with Ackman.
I much prefer to know what I’m buying, even if I wind up losing money on it. At least then I have no one to blame but myself. Sending some greedy, overpaid Wall Street gambler into the trading pit for me is not my idea of fun.
But it might be yours. I can’t recommend you buy PSTH, but I also can’t recommend against it, because I still don’t know what you’re getting into. It could be a fortune, or it could be a zonk.
At the time of publication, Dana Blankenhorn owned no shares, directly or indirectly, in any companies mentioned in this article.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at firstname.lastname@example.org, tweet him at @danablankenhorn, or subscribe to his Substack https://danafblankenhorn.substack.com/.