When Bill Ackman launched $4 billion special purpose acquisition company (SPAC) Pershing Square Tontine Holdings (PSTH), Fool.com contributor Matt Frankel, CFP, bought shares. As the largest SPAC in the world, and with a successful billionaire investor at the helm, it seemed like a good place to park some capital. However, after a few big setbacks, it could finally be time to move on. In this Fool Live video clip, recorded on Aug 23, Frankel and Industry Focus host Jason Moser discuss why this SPAC isn't as appealing as it was a few months ago.
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Jason Moser: Bill Ackman and his SPAC aspirations seemed to have been put on hold yet again and are now facing, I think, at least some litigation. Is Ackman making this more difficult than it really has to be?
Matt Frankel: Well, I'm looking at some of my previous headlines about this. There's one that says, "Here's why Bill Ackman's SPAC is a Good Long-Term Value," one says "Breaking Down Bill Ackman's Universal Music Deal," "Here Is Why I'm Excited About the Deal," "Here's Why Investors Should Stick With Pershing Square Tontine" after the deal went away.
Moser: What's today's headline, Matt?
Frankel: Yeah, those four didn't age very well, did they?
Moser: Well, what's today's headline, Matt?
Frankel: Well, today's headline is why I'm cutting my losses and moving on.
Moser: Well, you know it happens to the best of us.
Frankel: Here is why. Let's not sugarcoat it, this has been a disaster.
Frankel: Ackman raised $4 billion in the SPAC. A SPAC, the purpose of it is to find a business -- one, singular -- to take public through this vehicle. They announced a relatively complex deal. I'd say relatively, it was the most complex SPAC deal I've ever heard of where they were going to acquire 10% of Universal Music, leave some money in the SPAC to find yet another target, and then create a whole new investment vehicle that doesn't even exist called a SPARC, and distribute SPAC rights to the existing shareholders. The deal sounded great, it's not what SPACs are for.
Frankel: The SEC quickly had an issue with it and the deal was canceled pretty shortly after it was announced if you remember?
Frankel: That disappointed me specifically. It seems like someone like Bill Ackman would've done the due diligence to see if they could do that deal. If you were going to run into regulatory roadblocks that quickly, you couldn't have found that out before you announced it? That was red flag No. 1. But I held on because he said: ''OK, well, now we're $4 billion. We were already in talks with a few other businesses. We're still going to try to find someone to take public, we'll do a traditional SPAC merger instead. We have 11 months, whatever, we'll be fine.''
So I held on, the stock would come down a little bit. It didn't seem worth selling at that point. But then over the weekend he puts out this shareholder letter that essentially said two things: one, he's not looking for an acquisition target anymore and plans to return investors' money, $20 a share. And No. 2, that they're going to try to accelerate the creation of the SPARC vehicle and distribute a warrant to each shareholders so they can participate in that deal at costs. There's really no investment thesis here. You can get your $20 back. That creates a price floor. That's a limit to how much the shares will go down at this point. But the only reason to hold, is to try to get one of these SPARC warrants, which is an investment vehicle that doesn't even exist yet and would require the New York Stock Exchange to change a rule in order for it to exist. That doesn't seem worth keeping my money tied up in anymore.
Moser: I tend to agree.
Frankel: It's not a SPAC. It's a SPAC that is not looking for a target. Remember in Iron Man when he said this is a weapons company that's not making weapons? I kind of feel like it's that situation here right now. What's the reason to hold? I can't really come up with a good answer to that question.
Moser: Well, I think that's a very pragmatic way to look at it. It feels like this is become the ultimate forward-looking investment and not really in a good way. But I think there's a good lesson for folks out there, and it's one that you've learned. I know all along your investing journey is one that I've learned as well. It's one that I know a lot of our listeners have either learned or are in the process of learning. And that is just that when the thesis changes, it's OK to change your mind when the situation changes you have to reassess. Now, there are levels of change. Some changes are more material than others, and there are some changes that may not be that big of a deal. I would qualify this, I'd classify this as a big deal. This is a significant change, and it's one where it feels like OK, the investing case just isn't what it was before. I've to reassess, is it still worth keeping my money tied up here? What does the future look like? Clearly it's changed enough to the point where you don't feel like it's worth tying that money up. There's no opportunity cost involved.
Frankel: Yeah, and I know you've said a lot of times on the show that humility is a great characteristic of any investor.
Frankel: So it's important for investors to be able to admit when they were wrong. I was wrong about this. I would like Ackman to admit the same. I think he said he wants to return investors' money, but if and only if the SPARC thing is approved. He should just admit that the SPAC is not working out, they're not going to be able to find a target which he said in his letter, and just return investors' money and move on. Create the SPARC if you want to and let people buy it if you want to, but just admit you're wrong and move on. Ackman is great in spinning things, speaking of Wells Fargo (WFC 0.80%). It was well spun. But at the end of the day, this really hasn't worked out the way he wanted it to, and it's time to move on.