Bill Ackman abandons SPAC plan for Universal Music deal

In June, Mr Ackmann said his SPAC had agreed to buy a 10% stake in Universal from French media conglomerate Vivendi SE for around $ 4 billion. The deal valued Universal at some $ 40 billion. Typically, such transactions involve a previously listed PSPC or blank check company, merging with an unlisted company, making it public.

Mr. Ackman’s deal was different: Pershing Square Tontine Holdings Ltd., listed on the New York Stock Exchange, SPAC, did not intend to merge with Universal but rather to become a shareholder before a listing already planned by Universal in the Netherlands. People familiar with the matter said it was structured this way because of the tax and legal implications for Vivendi, the Wall Street Journal reported.

The structure has been hailed by some as a feat of financial engineering that also freed Mr. Ackman from some of the usual constraints of SPAC. Another departure from the typical PSPC structure, investors were not expected to vote on the deal.

Some observers, however, saw the structure as a concession to the reality that in an increasingly crowded PSPC market, and due to the relatively large size of the vehicle, Mr. Ackman was unable to conclude a more conventional agreement, been expected. As a sign of waning investor enthusiasm, shares of PSPC have fallen 18% since the initial deal was announced on June 4.

Mr Ackman admitted on Monday, saying the deal had not worked for many shareholders. “We underestimated the reaction some of our shareholders would have to the complexity and structure of the transaction,” he wrote in a letter to shareholders. “We also underestimated the potential impact of the transaction on investors who are unable to hold foreign securities, who have margins on their shares or who have call options on our shares.”

He said Tontine was abandoning the PSPC plan due to issues raised by the SEC with several elements of the proposed transaction. The SEC was not convinced the structure qualified under NYSE rules for such vehicles, Ackman said.

The SEC review comes as part of a larger review by the US regulator of the structure of PSPC. In May, the SEC said it was weighing new protections and guidelines amid fears that the blank check structure adequately protects small investors.

Universal is home to stars such as Taylor Swift, Queen and The Beatles. It has a market share of around 40% of the US recorded music market and around 30% globally.

Mr. Ackman had triggered one of Wall Street’s biggest guessing games in his hunt for a SPAC target. The activist investor had made frequent public statements about a mystery deal. After launching the $ 4 billion vehicle last summer, Mr. Ackman took a look at some of the biggest private companies, including Airbnb Inc., which has since gone public, Stripe Inc. and Bloomberg LP. PSPC shares were trading at a premium of around 25% over their initial public offering price, reflecting high hopes for a deal, the Journal reported.

Vivendi announced Monday that it has approved the request to transfer the share purchase agreement with PSPC to a number of funds linked to Mr. Ackman. He also said that those funds would acquire between 5% and 10% of Universal. If the stake was less than 10%, Vivendi said it would sell shares up to that amount to other investors ahead of the scheduled listing in September.

Mr. Ackman’s Pershing Square Holdings will serve as a significant shareholder alongside a consortium led by Chinese internet company Tencent Holdings Ltd., which has a 20% stake in Universal.

Mr. Ackman said his blank check company will now pursue a conventional PSPC merger. According to PSPC rules, he has 18 months left to complete a transaction. Mr. Ackman now faces the same challenge he started out with: finding a large and attractive target when the pool of applicants is relatively small.

Write to Nick Kostov at [email protected] and Ben Dummett at [email protected]