Pershing Square Tontine Has Almost No Risk Left After Its Merger Imploded

The Pershing Square Tontine (NYSE:PSTH) special purpose acquisition company (SPAC) has turned into quite the mess. All year, PSTH stock was a trader favorite. Everyone speculated on what company famed hedge fund investor Bill Ackman would buy with his SPAC.

A 3D illustration of the word SPACs on a stock board full of numbers and up and down arrows.
Source: iQoncept/

Would it be a big FinTech company like Stripe? How about a massive restaurant chain such as Subway or Chick-Fil-A? Perhaps he was in the market for a dominant legacy financial company such as Bloomberg.

No. All of those guesses ended up being pretty wide of the mark. Instead, Ackman chose to buy a stake in record label Universal Music Group (UMG).

In theory, UMG would be a great purchase. It has seen its fortunes improve dramatically due to the rise of music streaming. This new source of royalties has reinvigorated the music industry, and thus UMG is a burgeoning growth company once again.

Ackman constructed a clever deal that would buy part of UMG while also giving his SPAC shareholders rights to participate in his next deal. Everything seemed to line up. Then it all fell apart.

The Scuttled UMG Deal and PSTH Stock

Not long ago, Bill Ackman announced that Pershing Square Tontine would no longer be acquiring UMG. Rather, his own hedge fund will be buying the stake. Meanwhile his SPAC, which is what PSTH stock is invested in, will pursue a different as-of-yet undisclosed deal.

Immediately, folks became livid. If this deal was so great, why is Ackman shuffling it off to his own hedge fund rather than letting the public participate? That’s an understandable reaction. However, it’s worth noting several things.

One, the value of Ackman’s hedge fund — which is publicly traded overseas — declined in value after the revised deal was announced. So it’s not like his other investors wanted to buy UMG either.

Two, Ackman says that it is the SEC at fault for breaking up the deal.

Ackman’s SPAC intended to give shareholders rights to participate in his next SPAC deal in addition to the UMG purchase. It seems that the SEC was uncomfortable with the complexity of this deal. Rather than getting bogged down with regulators, Ackman decided to abandon the complicated deal structure altogether.

The Path Forward

PSTH stock will no longer invest in UMG. Rather, Ackman’s hedge fund will acquire that stake. Instead, the Pershing Square Tontine SPAC will pursue a totally different deal target.

Ackman also announced that going forward, Pershing Square Tontine will pursue a normal SPAC deal. This means that there won’t be any complex maneuvers.

The UMG deal was particularly complicated because the company would have been listed overseas, making it hard for owners on brokers such as Robinhood to participate. That, plus the warrants in the next deal made it extremely difficult to evaluate.

Going forward, Pershing Square will pursue a more straightforward transaction. This risks causing PSTH stock to head into a slump as traders wait for the next deal.

However, there’s a good chance Ackman can put together another deal quickly since he has already been looking at potential merger targets for the past year.

PSTH Stock Verdict

It’s understandable why everyone is so frustrated with Ackman and Pershing Square Tontine right now.

Obviously, traders had high hopes for PSTH stock. It traded above $30 at one point, which was a 50% premium to the SPAC offering price. This looked like one of the brightest stars in the SPAC universe. Now, it’s clearly fallen back to earth.

That said, it seems sentiment has gotten far too negative. At the absolute worst, PSTH stock is worth $20. If people lose faith in Ackman, they can simply demand to have their $20 per share returned and exit the SPAC.

So, at today’s price of around $23, investors are paying just a pare premium to buy whatever Ackman’s next deal is. And, as the list of potential deal targets I highlighted shows, there’s still a decent chance that Pershing Square Tontine will end up buying something glamorous.

It seems reasonable to think that PSTH stock could pop significantly once the next deal is announced. And, the worst, PSTH stock has a firm floor at $20, limiting risk dramatically.

On the date of publication, Ian Bezek held a long position in PSTH stock. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Ian Bezek has written more than 1,000 articles for and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.

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