Pershing Square Tontine Holdings Still Has Too Many Headwinds to Be Worthwhile Now

If he can pull it off, successfully bringing a company to market through his Pershing Square Tontine Holdings (NYSE:PSTH) special purpose acquisition company (SPAC) might be hedge fund manager Bill Ackman’s greatest accomplishment yet. Whether PSTH is worth your money right now is a different story altogether.

An image of wooden blocks that say SPAC over a series of one dollar bills.

Source: Dmitry Demidovich/

In 2020, Ackman delivered a 70% return to investors in his hedge fund, far better than the 16% return provided by the S&P 500 index last year.

The 2020 returns surpassed Ackman’s previous record return of 58% in 2019. Last year’s big return came after Ackman made a risky, though ultimately lucrative, credit hedge bet in the lead-up to the Covid-19 crisis and market selloff that occurred in March and April of 2020.

Ackman’s big wins in 2019 and 2020 help to explain why his latest SPAC, Pershing Square Tontine Holdings, is trading at nearly $25 a share despite the fact that it has yet to announce a target company to bring to the market via a reverse merger.

However, while Ackman is currently riding high on his past performances, he faces a number of challenges in trying to pull off a successful deal with PSTH stock.

Market Downturn and PSTH Stock

SPAC deals were red hot this year until they weren’t. In the first three months of this year, the value of U.S. SPAC deals surpassed the $83.5 billion that the sector raised in all of 2020, according to data from SPAC Research.

SPAC listings in this year’s first quarter dwarfed the $29.5 billion raised by traditional initial public offerings (IPOs). At the end of March, there were more than 400 SPACs with $131.1 billion in cash looking for companies to merge with.

Everyone seemed to be jumping on the SPAC bandwagon. Beyond celebrity hedge fund managers such as Bill Ackman, sports stars such as tennis player Serena Williams and former NBA basketball player Shaquille O’Neil were getting involved in SPACs. So too were politicians such as former U.S. House Speaker Paul Ryan. The party was raging.

But then it stopped abruptly in April. After more than 100 new SPAC deals in March, issuance came to a near standstill in April, with just 10 SPACs undertaken by mid-month, data from SPAC Research shows.

Many recent SPAC deals have performed poorly as the market suddenly went cold. These include the market debuts of ChargePoint Holdings (NYSE:CHPT), which is down more than 40% since going public via a SPAC, and Clover Health Investments (NASDAQ:CLOV), which is down more than 35% since its SPAC deal concluded in January. Collectively, SPAC stocks are down 20% year-to-date after making their market debut.

The fact that the SPAC market has come to a screeching halt makes it a difficult environment for anyone to pull off a successful deal now, even someone as skilled as Bill Ackman.

Increased Oversight

The sharp downturn in the SPAC market comes after the U.S. Securities and Exchange Commission (SEC) announced that it plans to bring greater scrutiny and oversight to SPAC deals and the financials of the companies involved in the reverse mergers.

Until now, companies involved in SPAC deals were able to come to market with less stringent financial reporting requirements than those imposed on companies involved in traditional IPOs. Plus, more than 90% of SPACs have been audited by just two accounting firms over the past six years.

The increased oversight of SPAC deals by the SEC has been the Wall Street equivalent of the police breaking up a party. And it has not just been institutional investors who have moved away from SPACs over the past month.

Signs have emerged that retail investors are also shying away from SPAC deals. Bank of America’s client flows showed that retail SPAC buying slowed significantly throughout the month of April.

No Target Yet

In addition to the poor market conditions for SPAC deals, investors should also be concerned that Pershing Square Tontine Holdings has yet to announce a target for the SPAC to bring to market.

Media reports claim that Ackman is seeking a true unicorn to bring public and has reportedly held talks with Airbnb (NASDAQ:ABNB) and Stripe about a reverse merger. While those talks did not result in a deal, it will no doubt take a big, well-known company for the Pershing Square Tontine Holdings SPAC deal to end up being considered a success.

It’s also worth noting that Bill Ackman’s track record is not without blemishes. While he has done extremely well throughout the pandemic, prior to 2019, his hedge fund returned three consecutive years of losses following a poorly timed bet on Valeant Pharmaceuticals and a disastrous short-selling campaign against Herbalife Nutrition (NYSE:HLF).
Ackman is fortunate that his credit-hedge strategy related to the Covid-19 pandemic paid off as he hoped.

Avoid PSTH Stock For Now

PSTH stock raised $4 billion in its IPO last year giving Bill Ackman plenty of ammunition to try and go out and bag an elephant with his latest SPAC deal. Media reports state that the Pershing Square Tontine Holdings deal could end up being worth $30 billion or more.

Ackman has given himself a deadline of this July to announce a partner company that he will bring public. Until that announcement is made, Pershing Square Tontine Holdings stock is likely to languish.

PSTH stock is down 27% since mid-February at $24.50. There’s every reason to believe the stock could fall further while uncertainty surrounds the SPAC deal.

As mentioned, the partner that Bill Ackman ultimately names will have to be a marquee company that investors are excited about on the order of an Airbnb or a Stripe. Anything less, and Pershing Square Tontine Holdings stock could be crushed under the weight of diminished expectations.

Given the current market downturn, increased oversight and uncertainty related to the Pershing Square Tontine Holdings SPAC deal, investors would be best advised to hold off on buying PSTH stock for now. At least wait to see which company Bill Ackman names as his partner in this deal.

On the date of publication, Joel Baglole held a long position in CHPT. 

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