Billionaire hedge fund manager Bill Ackman, the largest “blank check” company, went public on Wednesday, with more than $ 4 billion in his kitty to acquire a still-undetermined company, and has two years to choose a .
Pershing Square Tontine Holdings Ltd. PSTH.UT,
is a special purpose acquisition company (SPAC), formed to buy a private company and make it public through an acquisition similar to a reverse merger. The company raised $ 4 billion as it sold 200 million shares in its initial public offering that was priced at $ 20 per share.
The company’s shares began trading on the New York Stock Exchange on Wednesday morning, with the first listing at $ 21.10, or 5.5% above the IPO price. It has steadily risen since then, up to 7.9% in afternoon trading.
Ackman has built this war chest at once, as he said in an interview on CNBC on Wednesday, that he is “long-term optimistic” in the United States and the stock market, although he was bearish with highly indebted companies.
See: Ackman says he’s ‘long-term bullish’ on the stock market but ‘bearish’ on highly indebted companies
SPACs are shell companies without an operating business, formed just to buy private companies, or act as a back door means for a company to go public without the usual regulation and Wall Street fanfare, and costs, associated with a Traditional IPO. Read more about ‘blank check’ companies.
Renaissance Capital, a provider of institutional research and publicly traded funds, said it does not include SPAC in its IPOs because they are not operating companies. Therefore, investors should be cautious, since SPACs cannot be valued, except for the cash they have, until after an acquisition is made.
“SPACs can be extremely lucrative for the founders, who generally raise a fair amount of capital at face value, as well as for the IPO advisers, lawyers and bankers involved in the IPO and the eventual M&A deal,” said Matthew Kennedy, senior strategist at Renaissance Capital. “However, it is worth noting that SPACs have been a mix for long-term investors.”
While there have been some “high flyers” where publicly traded companies through SPAC have outperformed the IPO and the broader stock market, such as Nikola Corp. NKLA,
and DraftKings Inc. DKNG,
, the majority of SPACs that have completed acquisitions this year (59%) are trading below issuance, with an average return decrease of 12%, Kennedy said. The same was true last year.
As the SPAC market continues to grow, with the $ 16.8 billion raised by SPACs this year, even before Pershing Square Tontine went public, breaking SPAC’s record earnings record of $ 12.1 billion, the space began to mature, Kennedy said.
“Bulky support banks increasingly sign the deals. More long-term institutional investors are buying SPAC. More quality IPO candidates are considering going public via SPAC, ”Kennedy said. “And we are also encouraged by the structure of Pershing Square Tontine, where the sponsor will not make money unless public investors do.”
Pershing Square Tontine is sponsored by Pershing Square TH Sponsor LLC, owned by three investment funds: Pershing Square Holdings Ltd., Pershing Square LP, and Pershing Square International Ltd., all of which are managed by the Ackhman Pershing Square Capital hedge fund Management LP Ackman is also President and CEO of SPAC.
Citigroup, Jefferies and UBS Investment Bank are the joint administrators of book brokers for the IPO. There are a host of other bankers involved, including those of IPO co-lead managers CastleOak Securities LP, Loop Capital Markets, Ramirez & Co. Inc., and Siebert Williams Shank.
In connection with the IPO, the Pershing Square funds have committed to purchase a minimum of $ 1 billion in capital units, each consisting of one common share and one-third of a warrant to purchase shares, at a price of $ 20 per unit. The funds will be entitled to purchase up to an additional $ 2 billion in capital units.
That gives SPAC a minimum of $ 5 billion in cash capital to make a purchase. Although many other funds of equal or greater size formed to make acquisitions often buy 100% or most of the stakes in multiple companies, Pershing Square Tontine said that it plans to merge with a single private company and make it public, through an agreement. that only grants minority interest in the new public company.
When SPAC revealed its intention to go public in June, it said it planned to raise $ 3.45 billion by offering 172.5 million shares at $ 20 a share. At the time, as is customary with SPACs, he said that if a business combination was not completed within 24 months, or 30 months if a letter of intent is executed, it would return 100% of the shares to owners through of a cash payment.
Ackman chose what has been a stellar year for IPOs to go public with Pershing Square Tontine. The Renaissance IPO ETF IPO,
, which has the largest IPOs that have been completed in the past two years, is up 39% to date, while the S&P 500 SPX index,
It has gained 1.1%.
On the way to accumulate his fortune, Ackman is known to have made some bad investments, such as his bearish bet on Herbalife Nutrition Ltd. HLF,
and bullish bet on Valeant Pharmaceuticals International Corp., which is now a subsidiary of Bausch Health Companies Inc. BHC,
It will be seen, in no more than two years, if what you buy with your SPAC money can enrich investors a little more.
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