Ackman Got His SPARC, but Don’t Expect Him to Buy Twitter

The hedge fund manager’s persistence with the SEC finally paid off.


Bloomberg/ Michael Nagle

After two years, 15 amendments, and more than $10 million in legal fees, Bill Ackman finally managed to get Pershing Square SPARC Holdings approved by the Securities and Exchange Commission.

“I’m the most patient man in America,” joked Ackman, in reference to the long wait for the SEC’s approval.

Ackman conceived the newfangled SPARC structure as an improvement on a special purpose acquisition company after the SEC effectively denied the Universal Music Group deal struck with Ackman’s SPAC, Pershing Square Tontine Holdings, in 2021. The SPARC’s purpose, like that of a SPAC, is to invest in a private company and take it public.

Now the billionaire CEO of hedge fund Pershing Square Capital is on the prowl for a deal with a company seeking to raise $1.5 billion or more — and has already been fielding inquiries from interested parties. “The phone was ringing all weekend,” said an individual familiar with the situation. (On Friday, Ackman tweeted “If your large private growth company wants to go public without the risks and expenses of a typical IPO, with Pershing Square as your anchor shareholder, please call me. We promise a quick yes or no.”)

One candidate floated by the Wall Street Journal is Twitter, which Elon Musk now calls X, where Ackman has gained a lot of attention by posting his support for controversial presidential candidates Vivek Ramaswamy and Robert Kennedy Jr. Although Ackman donated to both men, he has since soured on them.

Twitter could be a bargain. Its value was marked down by at least one institutional investor, Fidelity Investments, by more than 50 percent since Elon Musk took it private for $44 billion last year.

A deal could also benefit Ackman’s charitable foundation, Pershing Square Foundation, which is underwater on its $10 million investment in the Twitter buyout. Ackman’s personal investment represents what the individual close to the situation called a “tiny” conflict of interest that would have to be disclosed should a deal with the Pershing Square SPARC come to pass.

Twitter’s banks would also like to get rid of their $12.5 billion in Twitter debt, which is now trading at 50 cents on the dollar, according to Bloomberg. That could occur if Twitter were to raise, say, $10 billion in a partial spinoff.

But Twitter is unlikely to be the company the Pershing Square SPARC inks a deal with, according to this individual. (Ackman told the WSJ that he was open to a transaction with Twitter, but later acknowledged that he has not spoken to Musk about it.)

“The easiest targets are companies held by private equity firms,” the individual familiar with Ackman’s thinking said. “All private equity investors would love to see some cash. A way to be a hero would be to sell one of the companies and have a big gain.”

As Institutional Investor has previously reported, private equity fundraising has tumbled this year because funds have been unable to sell their portfolio companies and return cash to their limited partners so they have money to invest in the next fund.

Pershing Square SPARC is committed to raising up to $3.5 billion as the anchor investor in a deal, and it has 10 years to find the right one. It plans to award special acquisition rights to former security holders of Ackman’s SPAC, which he liquidated last year.

The SEC has been critical of the SPAC structure and is proposing new rules that will necessitate more disclosure and allow investors to sue SPACs over misleading projections, which would not only affect the sponsors, but also their underwriters, accountants, and others involved in a SPAC’s merger deal, known as a deSPAC.

The traditional SPAC structure is a blank check company that raises money in an IPO and then looks for a company to buy with the proceeds. Shareholders also get warrants along with stock in the company.

SPACs have been criticized for the dilution created by the SPAC warrants and the provision for investors to redeem their stock at a set price once a deal has been struck, which historically has decimated the merged company’s coffers. In contrast, Ackman’s SPARC does not have warrants, and it also doesn’t require investors to put up any capital ahead of time. If Ackman finds a target willing to be acquired, SPARC holders will have the option of keeping or selling their rights, which will become publicly traded shares once a deal is consummated. (Ackman and Pershing Square paid about $36 million for sponsor warrants that allow them up to a 4.95 percent stake in the company. )

Most of the amendments to Ackman’s SPARC dealt with disclosure, a major concern of the SEC. Pershing Square SPARC Holdings will be subject to the new SPAC rules, which have not yet gotten final approval.