4 Better Buys Than Bill Ackman’s Failed Pershing Square SPAC

Since July, I haven’t written about Pershing Square Tontine Holdings (NYSE:PSTH) stock. At the time, it was trying to stickhandle its way through a tricky investment in Universal Music Group (OTCMKTS:UMGNF).

An image of wooden blocks that say SPAC over a series of one dollar bills.
Source: Dmitry Demidovich/ShutterStock.com

That deal never happened. The SEC turned the deal down. As a result, Bill Ackman’s Pershing Square bought 10% of Universal Music when it went public on the Amsterdam Stock Exchange in September.   

In my July article, I suggested three companies affiliated with Universal Music as possible alternatives. 

It now looks as though Ackman will wind up PSTH, return the funds to investors, and create a new investment vehicle to do something else. InvestorPlace’s Mark Hake discussed the whole situation on Oct. 26. It’s worth a read.

As a result, I’d like to revisit my three alternative buys plus an additional Ackman-related vehicle that are all better than PSTH stock.

Dump PSTH Stock for A, B, C and D

The three companies are Vivendi (OTCMKTS:VIVHY), Tencent Music Entertainment Group (NYSE:TME) and the Bolloré Group (OTCMKTS:BOIVF). 

On Sept. 21, Vivendi spun off Universal Music on a one-to-one basis, valuing UMG shares at 25.25 euros ($29.26). As I write this, Universal Music’s stock has traded sideways over the past seven weeks. Vivendi has done the same. As a result, it now holds 10.1% of the music business. 

Vivendi reported Q3 2021 results on Oct. 21. The company’s sales grew by 10.3% in the quarter to 2.48 billion euros ($2.87 billion), excluding currency. As a result, its adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was 461 million euros ($535 million), 20.7% higher than 382 million euros ($443 million). 

Business is good at the media conglomerate.

On Sept. 15, Vivendi announced that it would buy Amber Capital’s shares in Lagardere for 24.10 euros ($27.93) per share. Lagardere operates two main businesses: Lagardere Publishing and Lagardere Travel Retail. Vivendi will complete the purchase by Dec. 15, 2022; Vivendi would own 45.1% of its shares and 36.1% of its votes.

As a result of going over the 30% threshold, Vivendi will bid for the remaining shares at the same price. 

Vivendi’s 12-month trailing free cash flow (FCF) is 768 million euros ($890 million). So it’s got an FCF yield of 6.7%, which gets you growth at a reasonable price. 

The Other Choices

It hasn’t been a great experience for Tencent Music shareholders since it went public in December 2018 at $13. It did hit a high of $32.25 in March. However, since then, aided by the collapse of Archegos Capital Management, a family office run by Bill Hwang, TME stock has lost 75% of its value. 

The company reported Q3 earnings on Nov. 8. Earnings of 7 cents per ADR (American depositary receipt) beat analysts’ expectations by a penny. Total revenues came in at $1.21 billion, which was an increase of 3% from a year ago.

In August, I included TME on a list of 10 Chinese stocks to buy on the dip. Unfortunately, like many names in the group, investors have continued to push their share prices lower. 

TME currently trades at 2.7x sales, has FCF of $740 million, and an FCF yield of 5.4%, which is decent, if not spectacular, value. I remain confident it can get back to double digits soon. 

As for the Bolloré Group, I’m a sucker for family-controlled businesses. That being said, if you’re at all turned off by right-wing billionaires, this might not be your cup of tea.

Bolloré has a history that dates back to 1822. The Bolloré family still controls the public company to this day. It is one of the 500 largest companies in the world with more than 79,000 employees, 2020 revenue of 24.1 billion euros ($27.9 billion), and operating income of 1.65 billion euros ($1.91 billion).

Bolloré owns 27% of Vivendi and holds 29.7% of the votes. 

In its third quarter of 2021, the company grew its revenue 22% over last year, with an increase across all four of its operating segments: transportation and logistics (32%), oil logistics (52%), a 10% increase from communications/Vivendi, its largest segment, and a 45% increase from electricity storage and systems. 

In the first half of 2021, its EBITDA increased by 15% to 1.67 billion euros ($1.94 billion). With a TTM FCF of 1.34 billion euros ($1.55 billion), it has an FCF yield of 7.7% based on a $17.4 billion market cap.

The Bottom Line

The other possibility is to buy Pershing Square Holdings (OTCMKTS:PSHZF), Bill Ackman’s London-listed closed-end investment holding company. Through the end of October, net of fees, it’s up 21.6%. In 2020, it gained 70.2%. If you really want to ride Ackman’s coattails, this is the way to do it. 

At this point and time, all four alternatives are better investments than PSTH stock.

On the date of publication, Will Ashworth 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.

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. 


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