Bill Ackman Facing New Lawsuit After Failed SPAC Deal

Billionaire hedge fund manager Bill Ackman will be headed to court after a new lawsuit was filed on Tuesday related to his special purpose acquisition company (SPAC).

What Happened? The New York Times reported that former SEC commissioner Robert Jackson and Yale Law School professor John Morley allege that Ackman's Pershing Square Tontine Holdings Ltd PSTH isn’t a SPAC at all. Instead, the case contends, the SPAC is actually an investment company and should be regulated as such.

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Why It’s Important: Ackman used his SPAC to negotiate a complicated deal to take a 10% stake in Universal Music Group for $4 billion. Universal’s parent company Vivendi was already in the process of taking Universal public. The news sent Pershing Square Tontine shares soaring as high as $34.10 during the Wall Street SPAC boom back in February.

The deal quickly drew regulatory scrutiny from the SEC and Ackman abandoned the deal last month, sending Pershing Square Tontine shares back down to around $20.

Not only is the new lawsuit important for Ackman and his SPAC, but it could also have wide-reaching implications for all other SPACs as well.

Critics of the SPAC structure have claimed it has been used as a workaround and a way to avoid the regulatory scrutiny involved in taking a company public via the traditional initial public offering route.

The most high-profile example of investors getting burned by a shady SPAC deal is electric vehicle company Nikola Corporation NKLA. Last year, Nikola founder Trevor Milton stepped down from the company within months of Nikola’s SPAC merger amid allegations of fraud. Nikola shares climbed as high as $93.99 last year around the time of its SPAC merger. Today, they are trading at just $9.13.

Benzinga’s Take: SPAC investors should watch the outcome of the Ackman case closely given the implications it could potentially have on the entire industry. SPACs in the U.S. raised $87.9 billion in just the first three months of 2021, breaking the previous full-year record for SPAC fundraising in 2020.

Photo: Courtesy CNBC