Bill Ackman’s Pershing Square Tontine Holdings (NYSE:PSTH) stock is back in focus after the fund manager announced that he would return $4 billion of capital back to investors. Ackman attributed several factors to his special purpose acquisition company (SPAC) winding down, such as market volatility, the poor performance of completed SPACs, and risks created by the Investment Company Act.
High quality and profitable durable growth companies can generally postpone their timing to go public until market conditions are more favorable, which limited the universe of high-quality possible deals for PSTH, particularly during the last 12 months.
However, Ackman isn’t done with the special acquisition market just yet. He explains that current market conditions warrant an opportunity to create an acquisition vehicle “which does not suffer from the negative reputation of SPACs.”
Pershing Square is now working to launch Pershing Square SPARC Holdings, a special purpose acquisition rights company (SPARC). Let’s get into the details.
PSTH Stock: Bill Ackman Working to Launch New SPARC
SPARCs seek to do away with all the negative implications of SPACs. For example, Ackman’s planned SPARC will have up to ten years to find an acquisition target, eight more years than the usual deadline for SPACs. In addition, investors can invest in a SPAC and then sell their shares or redeem them at a merger vote. On the other hand, SPARC warrants gives investors the option to invest when a deal is announced. This ultimately “eliminates the substantial opportunity cost of capital that burdens all SPAC investors.” So, a SPARC operates with an opt-in model, while a SPAC operates with an opt-out model.
Ten years seems quite lengthy. Still, Ackman assured investors that he expects the search period to be “significantly shorter” than ten years. In addition, Pershing Square will make a $30 million investment into the SPARC to give it a head start.
The Pershing Square SPARC seeks to issue warrants, or SPARs, to PSTH stock and warrant holders. This event is planned for the close of business on July 25. Shareholders will receive 0.5 SPAR for each share of PSTH held and 1 SPAR for each warrant of PSTH.WS held. Furthermore, the timing of the SPAR distribution will be based on when SPARCs registration statement is approved. Ackman notes that there is “no certainty” that the SPARC will receive registration approval.
So, what kind of target is the SPARC looking for? Ideally, it would like to merge with a private, large capitalization growth company. The SPARC will also consider “carve-out transactions with large-capitalization public or private companies.”
On the date of publication, Eddie Pan did not hold (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.