(Bloomberg) — Billionaire investor Bill Ackman said he’s prepared to return the $4 billion he collected from investors in his blank-check company if regulators approve a new vehicle that will allow him to continue to search for deals without the pressure of a definitive deadline for a transaction.
Ackman posted a letter to investors in his Pershing Square Tontine Holdings Ltd. late Thursday, saying a lawsuit filed this week challenging the legality of his blank-check company hurt his chances of finding a deal. Calling the lawsuit meritless, Ackman noted that he still has about another 11 months to find a company to take public with his special purpose acquisition company, or SPAC, and another six months after that to close the deal.
“While we have been working diligently to identify and close a transaction, and we have begun discussions with potential merger candidates, our ability to complete a transaction in the required time frame has been impaired by the lawsuit,” Ackman said in the letter.
Shares of Pershing Square Tontine fell 1.1% to $19.77 at 10:02 a.m. Friday in New York. SPACs like Pershing Square Tontine are created to search for private companies to merge with and take public.
Ackman said he was prepared to return the capital to his SPAC’s investors if the U.S. Securities and Exchange Commission approves a new investment vehicle — known as a special purpose acquisition rights company, or SPARC — that would allow him to continue to pursue a deal without holding investors’ capital. If the SPARC is approved, Pershing Square Tontine holders would receive $20 in cash and one SPARC warrant for each share they own, he said.
In a series of tweets early Friday, Ackman said returning the money would eliminate the opportunity cost for Pershing Square Tontine investors, meaning they could deploy their funds elsewhere and still get the chance to participate in his next deal at cost.
“If you find yourself in a leaky boat, often times you are better off switching boats than patching leaks to complete the mission,” he wrote on Twitter.
The move comes after Pershing Square Tontine traded below its $20-a-share initial public offering price for the first time on Thursday, amid a broader slowdown for blank-check companies. Unlike a SPAC, a SPARC wouldn’t require investors to contribute capital until a target is identified. It would also eliminate the need to find a deal within the two-year period typically required with a SPAC.
“In a de-SPAC merger transaction, time pressure on the sponsor is the enemy of a good deal for shareholders,” Ackman said.
Ackman has had his troubles finding a deal. He had said he expected to find a target before the end of the first quarter of 2021, and then extended that self-imposed time frame.
In June, he said he planned to purchase a 10% stake in Universal Music Group from Vivendi SA with a portion of the funds he raised for Pershing Square Tontine, which is the largest SPAC ever raised. Regulators shot down that idea last month, and Ackman said his hedge fund would buy the stake instead.
The lawsuit filed by investor George Assad this week alleges that Ackman’s SPAC fits the description of an investment company and should be regulated as one, starting with the “staggering” compensation paid to Ackman’s hedge fund, Pershing Square Capital Management, as investment adviser.
Former SEC commissioner Robert Jackson and Yale Law School professor John Morley, who filed the suit Tuesday, said the case was launched after extensive research into federal laws to protect investors from abuses by SPAC sponsors.
“We are gratified to see that just two days after we filed our lawsuit, the world’s largest SPAC is now offering to mail back over $4 billion worth of checks to investors,” they said in an emailed statement Friday. “This validates the strength of our claims — and the urgent need to enforce existing investor protections in this industry.”
Ackman blamed the suit for his pivot to focus on his proposed SPARC.
“While we believe the lawsuit is meritless, the nature of the suit and our legal system make it unlikely that it can be resolved in the short term,” Ackman said in his letter.
“Even if the case were dismissed expeditiously, the plaintiff can then appeal,” he said. “As a result, the mere existence of the litigation may deter potential merger partners from working with PSTH on a transaction until the lawsuit is finally resolved.”
(Updates with lawyers’ comments starting in 13th paragraph)
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