When Bill Ackman launched his $4 billion special-purpose acquisition company almost a year ago, he went against the grain by creating an investor-friendly structure that pleased many shareholders and made Pershing Square Tontine Holdings one of the top performing SPACs this year.
But no one could have foreseen that he would also be so unconventional in picking a target — Universal Music Group — and in structuring the deal made with it. In fact, the deal is so complicated that shares of Tontine fell almost 12 percent Friday after the terms of an impending deal were announced.
Because the deal is not yet finalized, Ackman declined to discuss the details publicly beyond a statement released early Friday morning. But Pershing Square has told investors that Ackman will be doing a “media tour” once the transaction closes, which is expected to happen in a couple of weeks.
On Friday, however, the stock fell close to its IPO price of $20 per share, closing Friday at $22.07.
The deal certainly was unexpected. For starters, Universal is not the so-called unicorn desired by the many retail investors who had formed something of an Ackman cult. And, unlike most SPAC deals, Universal won’t be merged into Tontine, which is listed on the New York Stock Exchange.
Instead, if the deal is consummated, Tontine will take a 10 percent stake in a private subsidiary of Vivendi — Universal — when it goes public in Amsterdam in a deal valued at $42 billion. That is below the $50 valuation Goldman Sachs awarded Universal recently.
Tontine will even have $1.5 billion leftover to make another acquisition. At the same time, Ackman announced another novel vehicle, called a SPARC, or special-purpose acquisition rights company, that investors in Tontine will have first dibs on, at the IPO price. (Unlike a SPAC, it won’t require them to pony up cash before knowing the target.)
But the financial engineering has made Tontine’s value hard to calculate, and some investors told Institutional Investor they feared their warrants — a big component of any SPAC’s value — were now worth less. The value of outstanding call options on Tontine are also uncertain.
As for the warrants, in some cases they may have gotten better, according to details in the press release.
Some of them are still attached to the shares that will take a stake in Universal, and their value does not change.
Those that already trade publicly, however, will get something extra, according to the release. That’s because owners of redeemable warrants will immediately be able to exchange those into shares of Tontine, which will be used to buy the Universal stake.
Regardless of the market reaction, Ackman, Tontine’s CEO, is ebullient about the deal.
“Universal Music Group is one of the greatest businesses in the world,” he said in the statement. “Led by Sir Lucian Grainge, it has one of the most outstanding management teams that I have ever encountered.”
He added that the company “meets all of our acquisition criteria and investment principles as it is the world’s leading music company, with a royalty on the growing global demand for music. We are delighted to work with Vivendi on this iconic transaction, and look forward to its consummation.”
Universal Music, which has a streaming licensing deal with Spotify, represents some of the music world’s hottest acts, including Taylor Swift, Lady Gaga, and the Beatles. It recently inked a deal with Korean pop group BTS.
Shortly after the Wall Street Journal broke the news of the impending deal Thursday night, investors complained that Ackman was merely investing in the dying music business and they weren’t getting the high-flying unicorn they wanted, which for most was Stripe. Ackman, however, previously stated publicly that Stripe was not ready to go public.
Moreover, Ackman had always said that a “mature unicorn” was only one of four categories that he was looking at. In fact, last summer he told II that a unicorn was unlikely to end up as his target.
And for those concerned about the music industry, Tontine’s press release noted that “global consumer adoption of streaming will generate many years of high growth” for Universal. “Massive and growing total addressable market. Everyone loves music!” it said.
On Thursday night, Ackman also hinted that the deal held something special for its loyal retail investors. “Remember, we have the technology,” he wrote, a reference to an earlier tweet about giving Tontine’s retail investors the ability to invest in Pershing Square’s next SPAC on day one at the IPO price, as institutions can do.
That second SPAC has become the SPARC outlined in Friday’s announcement.
Tontine’s press release hit at 2:30 a.m. in New York, at which point Ackman tweeted again, directly to those on Reddit and Twitter, acknowledging them by their nickname: “Thanks for your patience Tontards.”
Now it looks like they are going to have to be patient a while longer.