Investors don’t seem to like the latest tune that they’re hearing from Pershing Square Tontine Holdings (NYSE:PSTH). Shares of PSTH stock are down more than 7% in pre-market trading after the company announced it would take a stake in Universal Music Group.
The Bill Ackman-led special purpose acquisition company (SPAC) announced earlier today that it is in discussions with France’s Vivendi (OTCMKTS:VIVEF) to acquire 10% of its music business for approximately $4 billion. Later this year, after Vivendi completes its previously announced listing of UMG on Euronext Amsterdam, PSTH plans to distribute the acquired UMG shares to its shareholders.
Investors have been waiting somewhat patiently for Ackman’s SPAC to make a full-fledged merger move. The fund manager said in late March, “Eight months since PSTH’s launch, we remain convinced that an investment in PSTH will generate highly attractive long-term returns, even from PSTH’s current stock price,” Reuters reported.
Last month, he told a Wall Street Journal interviewer, “We’re either going to get a transaction done in the next relative short term — weeks — or we’ll be onto the next one.” In May, Ackman’s Pershing Square investment management firm “bought a roughly 6% stake” in Domino’s Pizza (NYSE:DPZ)
Once a deal closes with Pershing Square Tontine, Ackman has also mentioned there would be a Pershing Square Tontine II investment opportunity.
“We like the idea of providing investors who backed us in PSTH with the opportunity to invest in PSTH2 without paying a premium to its cash-in-trust value. We have always believed in giving existing investors the right to participate in new Pershing Square opportunities, and we intend to continue this tradition with PSTH,” as noted in PSTH’s 2020 annual report.
What Will PSTH Stock Get in Universal Music Deal?
In the proposed transaction, PSTH stock holders will own three separately traded securities:
- Their pro-rata share of UMG Ordinary Shares, which at cost, including transaction expenses, represents approximately $14.75 per PSTH share, before accounting for any dilution from PSTH Distributable Redeemable Warrants (the “Redeemable Warrants”);
- Their pro-rata share of PSTH after the distribution of the acquired UMG shares (“PSTH Remainco”), which will have approximately $5.25 in cash per share, before accounting for any dilution from PSTH Distributable Redeemable Warrants; and,
- One transferable five-year right per share (a “SPAR”) of Pershing Square SPARC Holdings, Ltd. (“SPARC”), which is expected to trade on the New York Stock Exchange. According to the announcement, the special purpose acquisition rights company differs from a traditional SPAC. The SPARC does not intend to raise capital through an underwritten offering in which investors commit capital without knowing the company with which SPARC will combine.
And there’s a sweetener in the deal for those patient PSTH investors: The SPAC will remain a publicly traded company with $1.5 billion of cash after the distribution of UMG shares and will continue to seek a new business combination partner.
PSTH stock has increased 15.97% since its September 2020 debut, rising as high as $33.55 a share in mid February. It closed Thursday at $25.05.
On the date of publication, Robert Lakin did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
InvestorPlace contributor Robert Lakin is a veteran financial writer and editor, including previous stints with Bloomberg News and as a buyside equity research editor. His Substack newsletter, TLV Strategist, covers the Israel business scene.