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Bill Ackman’s twisty not-exactly-a-SPAC deal

June 4, 2021, 2:48 PM UTC

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Bill Ackman’s mega-special purpose acquisition company has found a much-anticipated potential target to take public. And hold onto your shorts, because it’s certainly no typical SPAC deal.

Confirming earlier reports from the Wall Street Journal, Pershing Square Tontine—the SPAC backed by Ackman’s Pershing Square hedge fund—confirmed it was in discussions to acquire a 10% stake in Universal Music Group, the giant music company that co-owns the publishing rights to songs by the likes of Taylor Swift and Lady Gaga, for $4 billion. The news comes amid a gold rush of deals around artist catalogs, while UMG itself has seen a boost in revenues from consumers streaming music from home. (Consumers, in short, are paying for their music again.) Those trends have helped justify valuing UMG at about $42 billion in the potential deal, which would also crown the listing as the largest company to go public via merger with a SPAC…right?

Except that’s not exactly what’s happening, and here’s where it gets twisty: Unlike in a typical SPAC deal, Bill Ackman’s Pershing Square Tontine would not merge with UMG, and it is not taking the company public. Vivendi, which owns 80% of the business, plans to list it as planned in Amsterdam in the third quarter of 2021. Only after that has happened will shares be given directly to Pershing Square Tontine’s shareholders. The structure of the deal also means the Tontine’s shareholders don’t need to vote to approve the deal at all.

Pershing Square Tontine remains the largest SPAC out there by the amount raised, but it has had trouble finding a company to combine with. After all, the bigger the SPAC, the smaller the universe of acquirees. Nevertheless, traders—especially on Reddit—have followed Ackman’s company with great fascination, trying to pinpoint where the hedge fund investor would put its dollars.

And here’s the really wild thing: The spectacle will continue. After investing in UMG, the Tontine will have $1.5 billion left over (that investors could add more to) in a vehicle aptly named PTSH Remainco, that will go toward acquiring another business. In total, the new Remainco vehicle could have $10.6 billion to make an acquisition, per the press release.

So why call Remainco a vehicle rather than a SPAC? Because Pershing Square is emphatically calling it something else: A SPARC, or a Special Purpose Acquisition Rights Company. Instead of investors betting on Ackman’s ability to find a good target, the so-called SPARC investors will only be issued the right to acquire shares, effectively only fully investing after the SPARC has found a target, meaning investors can choose not to invest if they dislike the target. The SPARC would also give Pershing Square greater control: According to the press release, the SPARC will initially be 100% owned by Pershing Square and its affiliates—so it can go ahead and consummate a deal even if some of its investors get cold feet.

Of course, the Universal deal might still generate some sparks, too. It comes with a mega caveat: The deal is in talks, meaning it may not happen at all.

Lucinda Shen


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