Bill Ackman terminates $4 billion from Spac after failing to find a target

Bill Ackman is returning investors the $4 billion he raised for his record-breaking buyout company, in a blow to the billionaire hedge fund manager.

In a letter to shareholders of Pershing Square Tenten Holdings on Monday, Ackman said the rapid economic recovery from the coronavirus pandemic has affected his ability to find a target.

“We launched PSTH into the depths of the pandemic because we believed that capital markets were likely to be affected by the economic uncertainty created by the pandemic,” he wrote.

“The rapid recovery of capital markets and our economy has been good for America but unfortunate for PSTH, as it has made the traditional IPO market a strong competitor and a preferred alternative for high-quality companies seeking to go public,” he added.

Ackman listed his company for blank checks in July 2020, just as the boom was beginning to unfold. The cancellation decision comes just weeks before a two-year deadline to find a target.

Spacs raise money from the stock market and use the proceeds to research a private company to put out to the public. With no operations for blank check companies in place, investors typically look to the quality of backers to decide whether to invest — and Ackman, one of Wall Street’s most popular investors, helped add credibility to the emerging market.

Ackman attempted to reinvent Spac by creating a structure that eliminated certain perks to the founders, which came under increasing scrutiny.

However, his biggest attempt to rewrite the rules was a complex and new deal with Universal Music Group in which he sought a 10 percent stake using money raised through Spac without going public with the company.

Ackman was forced to abandon the deal after a backlash from regulators and opted to buy the $4 billion stake in Universal Music using money from his hedge fund, Pershing Square, instead.

Subsequently, Robert Jackson, a former commissioner with the US Securities and Exchange Commission, and John Morley, a professor at Yale Law School, filed a lawsuit on behalf of a PSTH shareholder alleging that Ackman’s Spac was operating as an “unlawful investment firm.”

Ackman said the lawsuit was baseless and hurt his chances of closing a deal in the required timeframe.

Adding to the challenge was the challenging environment for Spacs, which has largely lost interest in investors and companies due to poor performance.

Ackman said he remains optimistic, however, noting in his letter that he is still working on launching Sparc — a special purpose buyout rights shorthand company, which gives investors a choice but not an obligation to participate in a deal.

“With the Spac and IPO market effectively closed today, it is now a highly opportunistic investment environment for a public takeover vehicle that does not suffer from the negative reputation of Spacs,” he wrote.