Last November, when Bill Ackman was introduced to Universal Music Group by one of his SPAC’s board members, the hedge fund manager was blown away.
“It was love at first sight,” he told investors in Pershing Square Tontine Holdings, the SPAC known by its stock ticker PSTH, in a three-hour conference call that ended at noon EST Wednesday. But try as he might, Ackman couldn’t make investors feel quite the same way about the music company in which Tontine plans to take a 10 percent stake—instead of what most SPACs do, which is to merge with a private company.
Ackman said he had hoped to take a 17.5 percent stake in Universal, but tax issues precluded its current owner, French conglomerate Vivendi, from selling more to his SPAC. As a result, the deal will leave Tontine with $1.6 billion to buy a stake in another company—just one fact that has scrambled valuation calculations for investors. But for Ackman, such concerns did not dissuade him. “Universal was the perfect business.” He said it “checked every box” so he “dug in.”
“I was like the dog that grabbed the bumper and wouldn’t let go,” he said.
Over the course of the morning, Ackman and his Pershing Square Capital team likened the streaming of music to software and talked about turning music into NFTs, or non-fungible tokens, that are the investment world’s latest fad. He noted Universal’s dominance in the music business, an industry that pulled itself out of a secular slump with the advent of streaming in 2015.
“Everyone wants to be a rock star,” said Ackman, who knows a thing or two about ambition. “And they want Universal because they have better success than anyone else in making you a star.”
Ackman and his team drilled into Universal in mind-numbing detail. The billionaire investor also lauded the “excellent analysts” on Reddit who are also poring over the numbers. And he noted that JPMorgan Chase & Co. recently upgraded Universal’s valuation to €50 billion. That is well above the enterprise value of €35 billion, or nearly $42 billion, on which Ackman’s stake of about 10 percent, or $4 billion, was based.
But it has been a tough sell, and Ackman also has a lot on the line. His Pershing Square Capital hedge fund is investing $1.6 billion into Tontine, with $1.1 billion going into Universal.
The lengthy call at times grew tense. Ackman complained that the slide deck wasn’t moving in tandem with his comments and at one point issued a terse directive to Tony Asnes, who heads Pershing Square’s investor relations, and was apparently seated nearby: “Tony, please don’t open plastic bags when I’m speaking.”
As the billionaire hedge fund manager spoke, the stock ticked up slightly, especially when he hinted that Universal would eventually get a dual listing on the New York Stock Exchange. As it stands, Universal plans to go public and trade on the Euronext Amsterdam stock exchange, a venue that most U.S. investors –both retail and institutional—don’t like.
The New York Stock Exchange, he said, “would love to have it listed here,” he told the group, letting them know he had already talked to the exchange. While Ackman made a strong case for Universal, investors said, the convoluted structure is still worrisome. PSTH is down about 8 percent since the Universal deal was first reported in the media earlier this month.
Moreover, many investors bought long-dated call options on PSTH during the height of SPAC mania earlier this year, and they are still uncertain how those will end up being valued. Those options are down about 70 percent, said investors holding them. The value of PSTH’s warrants are also uncertain.
What’s left over is another big unknown. The $1.6 billion still in the SPAC’s shell, now called RemainCo, has been in talks with two companies already, according to Ackman. (Pershing Square has $500 million invested in it.) And he is still on the hunt. “If you want to go public tomorrow, call me,” Ackman said, rattling off the phone number of Pershing Square Capital.
But the hedge fund manager is making no predictions. “I’ve learned to be extremely cautious,” he said, recalling that after his initial meeting with Universal he said publicly that he hoped a deal would be announced by the end of the first quarter. “Some people bought options on the basis of that statement and lost money,” he said. “We don’t like people speculating on options with PSTH. We’ll say nothing on RemainCo until we have an announcement.”
His newfound caution did little to assuage investors’ concerns. By the time the markets closed, PSTH had slid to a little below $23, down more than 3 percent on the day. It closed as high as nearly $33 earlier this year.
Even so, PSTH is trading at nearly a 15 percent premium to its $20 redemption price, which means investors approve of the transaction and are not likely to redeem. Many other SPAC deals that have been announced are trading below their redemption price.
