Finding a Target Is the Only Way Out for Pershing Square Tontine Holdings

Sometimes to give me a laugh, I’ll go to a subreddit on a particular investing subject. Given I’m writing about Pershing Square Tontine Holdings (NYSE:PSTH), Bill Ackman’s special purpose acquisition company (SPAC), I went to get the latest on PSTH stock.

PSTH stock photo of wooden blocks that say SPAC on a folded newspaper.
Source: Dmitry Demidovich/

I wasn’t disappointed. 

“PSTH will merge with PSTH2 and help get them publicly traded,” stated Reddit user e39 in March. “I believe that’s how the universe implodes.”

If that doesn’t make you laugh, you need to find a sense of humor. Stat. 

PSTH Stock Is Flapping in the Wind

Anyway, on a serious note, I’m not sure why someone would buy any of PSTH II when PSTH I is still flapping in the wind. 

A month ago, I thought anyone interested in getting in on PSTH before the announcement of a target; time was of the essence. A month later, investors continue to wait for Billy Boy to make his big reveal. 

The longer Ackman takes, the worse it is for investors because SPACs without merger partners continue to take it on the chin. InvestorPlace’s Vince Martin said on April 14 that $81 billion in SPACs trade below $10.  

When you consider that the average SPAC is $324 million in 2021, that means approximately 250 SPACs are underwater out of 432 searching for a target. 

I continue to be convinced that the SPAC lottery winners will be those that go after smaller businesses, not larger ones. That said, I still believe Ackman’s got the network to find something exciting. 

But until we know what the target is, investors have no way of knowing if there’s value beyond $25.

As my colleague says, it’s fallen from $32 to $25, but PSTH is still overpriced.

Is PSTH Overpriced at $25?

Martin’s argument is straightforward.  

PSTH has approximately $20.74 in cash. As I write this, PSTH is trading at $24.66, a 19% premium to its cash held in trust. That’s $1.3 billion. The premium to its $20 redemption price is 23%. 

 The markets say Ackman’s target will create between $1.3 billion and $1.6 billion in equity value. Martin’s saying we don’t know if that’s true or not. For this reason, it justifiably deserves to be priced lower than $24.66. 

When you think about it, he’s right. 

Until you know the target company in question and have answers regarding the finer points about its business and financials, you’re basically rudderless. 

It’s like buyers of residential real estate during the pandemic. Out here in Halifax, Nova Scotia, where I live, there have been many examples of people from Toronto (where I came from in February 2018) buying homes sight unseen. 

Sure, they’ve seen photos, but until you step into a house and feel its energy or lack thereof, in my mind, all bets are off. It’s too much to pay without a better understanding of what you’re actually getting.

Now, 100 shares of PSTH stock aren’t nearly as costly, but you can’t live in those shares. 

The Bottom Line

My colleague’s other good point is that Ackman is now competing against a larger number of SPACs to find a target. The fact PSTH has so much cash held in trust is a double-edged sword. 

On the one hand, having $4 billion gives you a much bigger target to go after than many other SPACs can’t afford. That’s the positive aspect. The negative part of the equation is there are only so many “mature unicorns” available, and of those, how many would be willing to have a meaningful discussion. 

Again, we won’t know the answer to that until after the combination is announced. 

So, at this point, PSTH really has no catalyst to move higher and $4 billion reasons to move closer to its cash per share value. 

Frankly, if you like Ackman, you might be better off buying Pershing Square Holdings (OTCMKTS:PSHZF), which trades on the London Stock Exchange and over the counter in the U.S.

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

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.

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