Pershing Square Tontine Holdings, Ltd. (NYSE:PSTH) today
released the following excerpt from CEO Bill Ackman’s letter to
shareholders contained in the 2021 Pershing Square Holdings, Ltd.
Semiannual Financial Statements.
Pershing Square Tontine Holdings, Ltd. (“PSTH”)
The market value of SPACs in general and PSTH, in particular,
declined since the beginning of the year, which along with PSTH’s
failure to consummate the Universal Music Group transaction likely
contributed to PSTH’s stock price declining to a level
approximating its $20 per share cash in trust. On Friday last week,
PSTH’s share price declined to slightly below NAV for the first
time.
Nearly all pre-merger SPACs have traded at discounts to NAV
since earlier this year. We believe this is due to many poor
outcomes for investors in conventional SPACs after they have
completed their merger transactions. The poor incentives of
conventional SPACs – enormous compensation for a SPAC sponsor for
just getting a transaction done regardless of the outcome for
shareholders, combined with limited Sponsor “skin in the game” –
are the principal problems.
By comparison, PSTH’s sponsor, which is wholly owned by the
Pershing Square Funds, owns no founder stock, is not entitled to
receive compensation of any kind, and has a lot of skin in the
game. By virtue of our Forward Purchase Agreements, we will have
the largest investment of any of our shareholders in PSTH’s target
company of $1 billion or more.
Our only additional incentive beyond our large FPA commitment is
our ownership of Sponsor Warrants, for which the Pershing Square
Funds paid $65 million, their fair value at the time of PSTH’s IPO
as determined with the assistance of a nationally recognized
valuation firm. Unlike our shareholders, who have the right to
receive a return of the $20 per-share cash in trust if we don’t get
a deal done, our warrants become worthless in that event.
If our $65 million investment at the time of the IPO had been
used to purchase PSTH common stock instead of warrants, it would
have made Pershing Square the sixth-largest shareholder of the
company. Like other shareholders, we have skin in the game and
suffer opportunity cost while we seek to complete a transaction,
and suffer a total loss of our $65 million investment if we fail to
complete a deal within PSTH’s remaining term.
Unlike in conventional SPACs where sponsors with limited time
remaining are incentivized to do any deal to get the benefit of
their Founder Shares, we would never risk our billion-dollar
minimum investment in a transaction to preserve the value of our
Sponsor Warrants. And in a bad deal, our 20% out-of-the-money
Sponsor Warrants, that cannot be sold, hedged or transferred for
three years, are not likely to be worth anything in that event.
Importantly, our entire investment in PSTH including our
ownership of the Sponsor warrants is held by PSH and the other two
Pershing Square Funds, not the principals of our investment
management company. By comparison, in other SPACs, entrepreneurs,
promoters or investment managers own the founder stock, and
committed capital comes from other peoples’ money. The Pershing
Square team owns 25% of PSH and a large and increasing amount of
the private funds, so we have a very large indirect stake in
PSTH.
The structure of PSTH is not perfect. As in other SPACs,
investors commit capital upfront and suffer the opportunity cost of
the loss of use of those funds until a deal is done, or until the
investment period comes to an end. We have been seeking to launch
SPARC, a special purpose acquisition rights company, to address
this concern, and to remove the time pressure of the two-year
investment period, which can impair our negotiating leverage.
On August 19th, I wrote a letter to PSTH shareholders explaining
that we are working to accelerate the launch of Pershing Square
SPARC Holdings, Ltd. (“SPARC”), which would give existing PSTH
shareholders and warrant holders the right to invest in SPARC’s
future merger transaction. The Pershing Square Funds would make a
large co-investment in SPARC on precisely the same terms
and at the same time as SPARC warrant
holders can exercise their warrants to buy stock in SPARC’s initial
business combination.
Assuming SPARC is approved by the SEC, and the SPARC warrants
are approved for listing on the NYSE, if PSTH has not by then
entered into a merger transaction, PSTH intends to seek shareholder
approval to enable it to return the $4 billion of cash PSTH holds
in trust to shareholders. Following the return of trust cash, we
expect SPARC to issue one $20 SPARC Warrant for each outstanding
PSTH common share, and one $23 SPARC Warrant for each PSTH
Distributable Warrant.
Launching SPARC will enable us to seamlessly continue working on
a potential merger transaction, if PSTH has not previously
completed one, on behalf of SPARC rather than PSTH, while no longer
burdening our PSTH shareholders with the opportunity cost of
capital associated with keeping their funds in a trust account. In
other words, it puts PSTH investors in precisely the same position
they are in today with an option to invest in our next merger
transaction at SPARC’s, rather than PSTH’s, $20 per share net asset
value, but without having their funds held in a trust. I encourage
you to read my August 19th letter which discusses SPARC in greater
detail here.
PSTH Lawsuit
Last week, a lawsuit was filed against PSTH which claims that
PSTH has been operating as an unregistered investment company
because, among other reasons, PSTH has continuously held investment
securities (short-term government securities and money market funds
that own government securities), as do all other SPACs, and also
because PSTH’s initial, but not completed, business combination
with UMG was structured as a stock purchase. Holding cash and
government securities and seeking a business combination,
particularly one that failed to close, do not make PSTH or any
other SPACs unregistered investment companies. While we believe the
lawsuit is totally without merit, it may have the effect of
deterring or delaying potential merger partners from transacting
with PSTH until it is resolved. Unfortunately, the nature of our
legal system makes even spurious litigation difficult to resolve in
a timely fashion.
Since the release of the letter, in light of questions we have
received and inaccuracies in certain press reports, I clarify a few
important points below.
Our plan to return cash to shareholders
once SPARC is approved does NOT in any way mean that we are walking
away from PSTH and giving up on completing a deal.
We remain committed to finding a transaction for PSTH. If we
have not done so by the time SPARC is approved, we will then
continue to pursue a business combination, on behalf of SPARC
rather than PSTH.
Importantly, we believe that the original premise behind PSTH
remains true: we continue to believe that the largest SPAC in the
world with the most investor-aligned structure can merge with a
high-quality, large capitalization business on attractive terms,
and thereby create substantial value for PSTH or SPARC
shareholders.
The best evidence of our ability to find a high-quality IBC
candidate and enter into a transaction on attractive terms is our
original proposed transaction with Universal Music Group. While the
regulatory issues raised by the SEC prevented us from consummating
that transaction in PSTH, the UMG deal is the best empirical
evidence of our ability to identify, negotiate, and sign a
transaction with one of the best businesses in the world on
attractive terms. One can get a preliminary indication of the
financial merits of the UMG deal by comparing PSTH’s negotiated
price per share of €18.66 at today’s exchange rate, including
transaction costs, to UMG’s stock price when it is fully
distributed for trading beginning late next month.
A successful launch of SPARC protects
all of PSTH’s investors – its shareholders and warrant
holders.
Assuming SPARC is approved, SPARC intends to issue two new
warrants: one for each of the 200 million PSTH shares outstanding
(“the $20 SPARC Warrants”), and one for each of the 22.2 million
Distributable Redeemable Warrants (“DR Warrants”) outstanding (“the
$23 SPARC Warrants”). This will enable SPARC to replicate the
capital structure of PSTH, with $4 billion of equity capital, if
all of the $20 SPARC Warrants are exercised at the time of a
business combination, before considering capital funding from the
Pershing Square Funds’ Forward Purchase Agreements.
The planned issuance of the SPARC warrants for each of the DR
Warrants does not appear to be widely understood by DR Warrant
holders. To clarify, the two SPARC warrants would have the
following terms:
- The $20 SPARC Warrants, issued to
PSTH common stock owners, would entitle holders to acquire shares
of SPARC at its $20 per share NAV only when SPARC has entered into
a definitive agreement for its IBC, achieved all necessary
approvals, and the transaction is ready to close.
- The $23 SPARC Warrants, issued to
PSTH DR Warrant holders, are effectively identical to the 22.2
million DR Warrants that PSTH currently has outstanding – they will
have the same $23.00 exercise price, and the same five-year term,
in this case from the completion of SPARC’s IBC.
Since the $23 SPARC Warrants only become exercisable when SPARC
completes its IBC, they are not at risk of expiring until the end
of the term that SPARC has to find a deal, which would be many
years from now. By comparison, PSTH’s existing DR Warrants lose all
of their value if we do not sign a letter of intent for a deal in
11 months, and close within six months thereafter. Since the $23
SPARC Warrants have a much longer term than our existing warrants
and therefore have a higher probability of becoming effective in an
IBC, they should be substantially more valuable than our current DR
Warrants, which have a much shorter term remaining before an IBC
must be completed to extend their life.
Will SPARC Be Approved by the SEC, and
Will the SPARC Warrants Be Listed for Trading on the
NYSE?
We cannot be certain that SPARC will be approved by the SEC, and
that the SPARC warrants will be approved for trading on the NYSE,
either under the terms we have proposed or at all. The issuance of
SPARC warrants will require an SEC-approved NYSE rule change, and a
registration statement that is deemed effective by the SEC.
We have achieved a number of important steps toward SPARC’s
approval including confidentially submitting SPARC’s draft
registration statement to the SEC for review, and receiving a
comment letter in response to our submission from the SEC staff
which identified some disclosure and other technical questions that
we believe we can address.
We are working to amend SPARC’s registration statement to
respond to the comments we have received from the SEC staff, and
plan to file it publicly as promptly as practicable. This document
will explain SPARC’s attributes in greater detail. We encourage you
to read it carefully. Progress has also been made on the rule
change as the NYSE has already drafted a new rule that if approved
by the SEC would allow the SPARC warrants to be listed on the
Exchange.
We believe that the investor-friendly features of SPARC should
facilitate SPARC’s approval within a reasonable time frame, that is
in months, not years. We also note that not only will the rule
change and SPARC’s approval create a much more favorable template
for all SPACs, but it will also have a highly favorable impact on
PSTH shareholders and warrant holders.
You can help get the NYSE rule change
approved by providing favorable public comments about the rule
during its public comment period.
Whether you are a large or small shareholder of PSH or PSTH, or
another market participant, your opinion matters to the SEC and NYSE in their consideration of the
rule.
The stated goal of the academics who launched their lawsuit
against PSTH is to reform the SPAC industry. We agree that the
industry, but not PSTH, needs reform. We are unaware of a better
and faster approach to SPAC industry reform than what would be
achieved by the SEC approving SPARC expeditiously, as it may also
motivate other SPAC market participants to abandon the current SPAC
structure, and replace it with a much better acquisition vehicle
for investors and sponsors.
We believe there are many negative aspects to the current IPO
market and its approach, and it therefore needs competition.
Acquisition companies can play a highly important role in capital
formation, but only if properly designed to align sponsor and
investor incentives, without the structural attributes that have
led to bad outcomes for investors.
Market driven reforms can happen quickly when a market
participant has a thoughtful and innovative idea that helps
investors and garners regulatory support, allowing other sponsors
to copy the idea. We hope that SPARC sparks a SPAC revolution to
benefit all investors and U.S. capital formation.
As always, we are extremely appreciative of your support and
patience, particularly when certain investments do not proceed as
we initially expected.
Important Additional Information and Where to Find It
This press release does not constitute an offer to sell or buy
or the solicitation of an offer to buy or sell any securities. This
communication is not a recommendation to buy, sell or exchange any
securities, and it is neither an offer to purchase nor a
solicitation of an offer to sell securities. Information about PSTH
and certain of the matters discussed in this press release is
available at the SEC’s website at www.sec.gov.
Forward-Looking Statements
This press release contains certain forward-looking statements
within the meaning of the federal securities laws. These
forward-looking statements generally are identified by the words
"believe," "project," "expect," "anticipate," "estimate," "intend,"
"strategy," "future," "opportunity," "plan," "may," "should,"
"will," "would," "will be," "will continue," "will likely result,"
and similar expressions. Forward-looking statements are
predictions, projections and other statements about future events
that are based on current expectations and assumptions and, as a
result, are subject to risks and uncertainties. Many factors could
cause actual future events to differ materially from the forward
looking statements in this release. You should carefully consider
these and the other risks and uncertainties described in PSTH’s
annual report on Form 10-K and other documents PSTH has filed with
the SEC. Those filings identify and address other important risks
and uncertainties that could cause actual events and results to
differ materially from those contained in the forward-looking
statements. Forward-looking statements speak only as of the date
they are made. Readers are cautioned not to put undue reliance on
forward-looking statements, and PSTH assumes no obligation and does
not intend to update or revise these forward-looking statements,
whether as a result of new information, future events, or
otherwise. PSTH does not give any assurance that PSTH will achieve
its expectations. The inclusion of any statement in this press
release does not constitute an admission by PSTH or any other
person that the events or circumstances described in such statement
are material.
About Pershing Square Tontine Holdings, Ltd.
Pershing Square Tontine Holdings, Ltd., a Delaware corporation,
is a blank check company formed for the purpose of effecting a
merger, capital stock exchange, asset acquisition, stock purchase,
reorganization or similar business combination with a private
company. PSTH is sponsored by Pershing Square TH Sponsor, LLC (the
“Sponsor”), an affiliate of Pershing Square Capital Management,
L.P., a registered investment advisor with approximately $14
billion of assets under management. www.PSTontine.com
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version on businesswire.com: https://www.businesswire.com/news/home/20210824005843/en/
Media Contact: Fran McGill 212-909-2455 McGill@persq.com
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