Bill Ackman To Wind Down SPAC After Failing to Find Target Company: What Happens To Shareholder Funds?

Pershing Square Tontine Holdings Ltd PSTH, a special purpose acquisition company (SPAC) promoted by hedge fund manager Bill Ackman, said on Monday that it will return $4 billion of capital in trust to shareholders.

What Happened: The decision to wind down the blank-check firm comes about two years after its initial public offering when its aim was to merge with and take public a large-cap private company meeting its investment criteria for "business quality, durable growth, and an attractive valuation."

The SPAC hasn't been able to consummate a transaction that met its "investment criteria and is executable," the company said in a letter to its shareholders.

A SPAC uses the finance raised in the public market to invest in a private company and take it public. These companies have until 24 months to implement a business combination.

With Pershing Square Tontine unable to meet the stipulations, it said it will redeem all of its outstanding shares of its Class A common stock, effective as of July 26. Net of taxes, the company expects the per-share redemption price for the shares to be $20.05.

The SPAC listed on the NYSE on Sept. 11, 2020, at $22 and closed the debut session at $21.60.

Related Link: Bill Ackman Steps Up Call For Rapid Fed Rate Hikes To Quell Inflation

Why It's Important: The SPAC phenomenon assumed a feverish pitch during the COVID-19 pandemic and was used by private companies to take advantage of lofty valuations in the public market. With several companies that took the SPAC route for public listing floundering and regulatory scrutiny intensifying, SPACs have lost their appeal since then.

Pershing Square Tontine once identified Universal Music Group N.V. UNVGY as a "highly attractive target" but was forced to abandon the pursuit due to parent Vivendi's structural and legal requirements mandating a transaction structure unconventional for SPACs. The SEC had raised concerns over such a deal.

Pershing attributed the decision to wind down the SPAC to the "extremely poor performance" of SPACs that have completed deals, high redemption rates, and the risk and uncertainty created by the litigation brought against it, along with new SPAC rules proposed by the SEC on March 30.

Ackman has planned to replace the SPAC with a new blank-check vehicle called SPARC – Special Purpose Acquisition Rights Company. This provides for selling rights to investors at no cost, and it calls on investors to pay up when it zeroes in on a target. The time limit does not apply to a SPARC.

Price Action: Pershing Square Tontine closed Monday's session little changed at $20 and added 0.30% to $20.06 in after-hours trading, according to Benzinga Pro data.

Photo via Center For Jewish History on Flickr