Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

Pershing Square Tontine Holdings / Event-Driven

Pershing Square Tontine Holdings (PSTH US)

<p>Pershing Square Capital Management and <a href="https://www.smartkarma.com/entities/pershing-square-tontine-holdings-a" target="_blank" data-smartkarma-citation="entities:33390:1" rel="noopener">Pershing Square Tontine Holdings-A (PSTH US)</a> announced on 4 June a deal which was at a time complex, and self-perpetuating. The "Tontine" which made the name "cute" became a deal SpinCo, and a RemainCo, and rights to yet something else. The obvious conclusion was that the next deal would allow them to raise capital, and leave a remaining listed rights situation, which would then become the rights to the next DealCo, and this would self-perpetuate as long as there were deals to be done. I called it...</p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/219/218/original/Screenshot+2021-07-19+at+3.22.51+PM.png?1626679386" class="editor-image img-responsive" data-smartkarma-image-id="219218"></figure></section><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/219/215/original/Everlasting+Gobstopper+Gif1.gif?1626677288" class="editor-image img-responsive" data-smartkarma-image-id="219215"></figure></section><p>Kids love 'em. </p><p>The thing is, as every kid who has ever sucked on an Everlasting Gobstopper knows, they can easily get stuck in your throat. </p><p>Pershing Square was adamant that this deal, while complex, would pass the NYSE and SEC rules for a business combination. </p><h3>But today, PSTH <a href="https://pstontine.com/wp-content/uploads/2021/07/Letter-to-Shareholders-from-PSTH-CEO-Bill-Ackman.pdf" target="_blank" rel="noopener">announced</a> it had choked on its gobstopper. </h3><p></p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/219/217/original/Screenshot+2021-07-19+at+2.58.18+PM.png?1626677924" class="editor-image img-responsive" data-smartkarma-image-id="219217"></figure></section><p>That's not a great look. </p><p><em>But what are the opportunities?</em></p><p>More below the fold.</p>

Pershing Square Capital Management and Pershing Square Tontine Holdings-A (PSTH US) announced on 4 June a deal which was at a time complex, and self-perpetuating. The "Tontine" which made the name "cute" became a deal SpinCo, and a RemainCo, and rights to yet something else. The obvious conclusion was that the next deal would allow them to raise capital, and leave a remaining listed rights situation, which would then become the rights to the next DealCo, and this would self-perpetuate as long as there were deals to be done. I called it...Kids love 'em. The thing is, as every kid who has ever sucked on an Everlasting Gobstopper knows, they can easily get stuck in your throat. Pershing Square was adamant that this deal, while complex, would pass the NYSE and SEC rules for a business combination. But today, PSTH announced it had choked on its gobstopper. That's not a great look. But what are the opportunities?More below the fold.

Pershing Square Chokes on Its Everlasting Gobstopper

<p><em>An "Everlasting Gobstopper" was a fictional candy from Roald Dahl's children's story Charlie and the Chocolate Factory. It was, according to Willie Wonka - owner of the factory and inventor of its confections - "for children with very little pocket money." The hard candy would change flavours and colours in one's mouth, but it would never shrink to nothingness. It would never disappear. </em></p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/211/405/original/Everlasting+Gobstopper+Gif1.gif?1622964485" class="editor-image img-responsive" data-smartkarma-image-id="211405"></figure></section><hr><p>Today 4 June 2021, at 2:30am E.S.T., <a href="https://www.smartkarma.com/entities/pershing-square-tontine-a" target="_blank" data-smartkarma-citation="entities:33390:1" rel="noopener">Pershing Square Tontine -A (PSTH US)</a> issued a <a href="https://pstontine.com/wp-content/uploads/2021/06/PSTH-Press-Release-6.4.2021.pdf" target="_blank" rel="noopener">Press Release</a> describing a complex series of transactions related to the pre-existing Pershing Square (Pershing Square Capital Management or "PSCM") SPAC vehicle (PSTH), <a href="https://www.smartkarma.com/entities/vivendi-sa" target="_blank" data-smartkarma-citation="entities:21076:1" rel="noopener">Vivendi SA (VIV FP)</a> and its unit Universal Music Group ("UMG") which is scheduled to IPO, and a group of follow-on assets.</p><p>Pershing Square listed what was at the time the largest SPAC ever in July 2020 at US$20/share with a drop-dead dead (when PSTH needed to get a deal done) in late July 2022. The SPAC includes a 1/9th warrant with every share, and holders who hold all the way through the prospective business combination without redeeming were going to get a 2/9th warrant (which was called a Tontine Tarrant). In order to live up to their name, Tontine Warrant holders would also receive a pro-rata portion of the forsaken Tontine Warrants left over when some redeemed their SPAC shares. The SPAC also entered into a "Forward Purchase Agreement" with Pershing Square L.P. and Pershing Square International, and <a href="https://www.smartkarma.com/entities/pershing-square-holdings-ltd" target="_blank" data-smartkarma-citation="entities:967:1" rel="noopener">Pershing Square Holdings (PSH NA)</a> whereby the three parties would purchase US$1bn worth of SPAC shares (with one-third Sponsor Warrants attached) at a date no later than the business combination, and they had the option to purchase up to $2bn more of shares (plus 1/3 Sponsor Warrants). The strike price on the Common Shares for the Redeemable Warrants and Tontine Warrants is US$23.00/share. Sponsor Warrants are US$24.00/share (but longer maturity). The total available capital to contribute to such a combination would therefore be up to US$6.45bn. There was a clause allowing Pershing Square to put in more than $3bn if so mutually agreed. Given that PSTH is/was run by PSCM, "agreement" meant "if Bill Ackman wants to."</p><p>There has been a lot of speculation on targets based on the initial idea of it being a "mature unicorn", with most observers concentrating on the word "unicorn" and not "mature" for the Tontine SPAC but Pershing Square head Bill Ackman has given hints in interviews (including <a href="https://youtu.be/sRH8F42yo04" target="_blank" rel="noopener">one video interview</a> with WSJ last month) and observer comments had been, as far as I could tell, way off base with people looking at companies to which Bill Ackman would likely be loathe to attach his name. </p><p>The <em>promise</em> of Tontine Holdings was that it would be a large pot of capital which would "solve the seller's problem." It would also be "iconic" and the S-1 described the acquisition criteria (which effectively meant a bunch of the possible candidates bandied about were never really candidates):</p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/211/174/original/Screenshot+2021-06-04+at+5.24.47+PM.png?1622798725" class="editor-image img-responsive" data-smartkarma-image-id="211174"></figure></section><p>Point #1 probably ruled out an internet growth company. Point #6 suggested it needed to be $15-20bn in market cap. Point #1 and Point#3-4 together suggested a mature cash-flow generative business which could grow. If Thomson Reuters had been for sale, one could have imagined that. There was speculation, quickly denied, that Bloomberg could be the target, but those businesses seem a bit disrupt-able. When I thought of "set-it-and-forget-it" businesses which needed to IPO, I thought of UMG, the Sony-EMI Music Publishing business, or a carveout food products business, because Bill Ackman loves his packaged food products. But I couldn't personally come up with one where I thought that Bill Ackman's structure could "solve a problem" which needed to be solved by Bill Ackman and not public markets. </p><p>This is a complicated transaction. It seems <em>unnecessarily</em> complicated as so far described. While Bill Ackman is a consummate salesman - everything he has ever invested in as been good for the world if you listen to him - so one has to take what he says with a grain of salt. My first look at the structure suggests that some of the "complexity" involved as discussed in the WSJ interview is due to Bill Ackman solving for Bill Ackman's problems, not Bill Ackman solving for the Seller's Problems. </p><p>Below the fold I break down the complexity, and the payoff structure for holders of PSTH and how that could work going forward. </p>

An "Everlasting Gobstopper" was a fictional candy from Roald Dahl's children's story Charlie and the Chocolate Factory. It was, according to Willie Wonka - owner of the factory and inventor of its confections - "for children with very little pocket money." The hard candy would change flavours and colours in one's mouth, but it would never shrink to nothingness. It would never disappear. Today 4 June 2021, at 2:30am E.S.T., Pershing Square Tontine -A (PSTH US) issued a Press Release describing a complex series of transactions related to the pre-existing Pershing Square (Pershing Square Capital Management or "PSCM") SPAC vehicle (PSTH), Vivendi SA (VIV FP) and its unit Universal Music Group ("UMG") which is scheduled to IPO, and a group of follow-on assets.Pershing Square listed what was at the time the largest SPAC ever in July 2020 at US$20/share with a drop-dead dead (when PSTH needed to get a deal done) in late July 2022. The SPAC includes a 1/9th warrant with every share, and holders who hold all the way through the prospective business combination without redeeming were going to get a 2/9th warrant (which was called a Tontine Tarrant). In order to live up to their name, Tontine Warrant holders would also receive a pro-rata portion of the forsaken Tontine Warrants left over when some redeemed their SPAC shares. The SPAC also entered into a "Forward Purchase Agreement" with Pershing Square L.P. and Pershing Square International, and Pershing Square Holdings (PSH NA) whereby the three parties would purchase US$1bn worth of SPAC shares (with one-third Sponsor Warrants attached) at a date no later than the business combination, and they had the option to purchase up to $2bn more of shares (plus 1/3 Sponsor Warrants). The strike price on the Common Shares for the Redeemable Warrants and Tontine Warrants is US$23.00/share. Sponsor Warrants are US$24.00/share (but longer maturity). The total available capital to contribute to such a combination would therefore be up to US$6.45bn. There was a clause allowing Pershing Square to put in more than $3bn if so mutually agreed. Given that PSTH is/was run by PSCM, "agreement" meant "if Bill Ackman wants to."There has been a lot of speculation on targets based on the initial idea of it being a "mature unicorn", with most observers concentrating on the word "unicorn" and not "mature" for the Tontine SPAC but Pershing Square head Bill Ackman has given hints in interviews (including one video interview with WSJ last month) and observer comments had been, as far as I could tell, way off base with people looking at companies to which Bill Ackman would likely be loathe to attach his name. The promise of Tontine Holdings was that it would be a large pot of capital which would "solve the seller's problem." It would also be "iconic" and the S-1 described the acquisition criteria (which effectively meant a bunch of the possible candidates bandied about were never really candidates):Point #1 probably ruled out an internet growth company. Point #6 suggested it needed to be $15-20bn in market cap. Point #1 and Point#3-4 together suggested a mature cash-flow generative business which could grow. If Thomson Reuters had been for sale, one could have imagined that. There was speculation, quickly denied, that Bloomberg could be the target, but those businesses seem a bit disrupt-able. When I thought of "set-it-and-forget-it" businesses which needed to IPO, I thought of UMG, the Sony-EMI Music Publishing business, or a carveout food products business, because Bill Ackman loves his packaged food products. But I couldn't personally come up with one where I thought that Bill Ackman's structure could "solve a problem" which needed to be solved by Bill Ackman and not public markets. This is a complicated transaction. It seems unnecessarily complicated as so far described. While Bill Ackman is a consummate salesman - everything he has ever invested in as been good for the world if you listen to him - so one has to take what he says with a grain of salt. My first look at the structure suggests that some of the "complexity" involved as discussed in the WSJ interview is due to Bill Ackman solving for Bill Ackman's problems, not Bill Ackman solving for the Seller's Problems. Below the fold I break down the complexity, and the payoff structure for holders of PSTH and how that could work going forward. 

Pershing Square (PSTH) Turns a Tontine to an Everlasting Gobstopper

President, Vision Research

Robert C Prather Jr

President

Vision Research

Vision Research was formed in 2004 with the vision of generating the best possible fundamental analysis and investment research for smid cap US equities. In 2008, we broadened our coverage to include mid/large cap US stocks.  After researching a  few ideas outside the US each year for a number of years, we launched a dedicated non-US equity product at the end of 2015.  This was followed by the introduction of a product focused on IPOs in mid-2017.

Fundamental Insight

<p>Bill Ackman's SPAC has performed well, trading as high as $34.10 in February 2021 before settling down to +/-$25 for the past few months.</p><p>On June 4th, 2021, the stock dropped nearly 12% after the SPAC announced an investment in Universal Music Group....find out why</p>

Bill Ackman's SPAC has performed well, trading as high as $34.10 in February 2021 before settling down to +/-$25 for the past few months.On June 4th, 2021, the stock dropped nearly 12% after the SPAC announced an investment in Universal Music Group....find out why

Pershing Square Tontine Holdings (PSTH): Is UMG Acquisition a Good Deal?

United States

Pershing Square Tontine Holdings, Ltd. operates as a blank check company. The Company aims to acquire a business via a merger, capital stock exchange, asset acquisition, stock purchase, and reorganization.

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Pershing Square Tontine Holdings (PSTH US)

Pershing Square Chokes on Its Everlasting Gobstopper

Pershing Square Tontine Holdings has cancelled its deal to buy UMG and spin it off. SEC Problems and Investor Complications. This means it is now a...

Travis Lundy

Pershing Square (PSTH) Turns a Tontine to an Everlasting Gobstopper

Pershing Square Tontine Holdings is in talks to own 10% of Universal Music Group. The Transaction is complex, with future optionality for PSTH...

Travis Lundy

Pershing Square Tontine Holdings (PSTH): Is UMG Acquisition a Good Deal?

Investors are disappointed in what could be the largest SPAC transaction ever recorded...find out what caused this and why downside might be...

Robert C Prather Jr

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