A SPARC Is Still a SPAC

In this podcast, Motley Fool analyst Jason Moser and host Deidre Woollard discuss:

• If a SPARC (special purpose acquisition rights company) is the new SPAC. 
• Being cautious about IPOs.
• The impossibility of creating a super-app.

Motley Fool host Ricky Mulvey interviews Marc Robinson, the principal consultant at MSR Strategy and an expert in game theory, to understand the rules of the game in this United Autoworkers strike.

Claim your Stock Advisor discount here: www.fool.com/mfmdiscount

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.

This video was recorded on Oct. 02, 2023.

Deidre Woollard: What's driving the United Auto Workers strikes? Motley Fool Money Starts now. Welcome to Motley Fool Money. I'm Deidre Woollard here with Motley Fool analyst Jason Moser. How are you today, Jason?

Jason Moser: Hey, Deidre, doing great. How about you?

Deidre Woollard: I'm doing great. I learned a new acronym over the weekend which is a SPARC, not a SPAC. It's a special acquisitions rights company. So Bill Ackman, famous billionaire investor, he got SEC approval on Friday for the Pershing Square SPARC. This is interesting because last year, he shut down what was going to be the biggest SPAC ever, the four billion dollar Pershing Square Tontine Holdings, now those shareholders will get shares in this new company. What is a SPARC and why is it not a SPAC?

Jason Moser: The simplest view here to me, it seems like a SPARC, it's a more logical first step, perhaps in helping investors gauge interest and for interested investors to be able to not have to take quite as much risk up front in considering new ideas. If you look at a SPAC versus a SPARC, SPACs, special purpose acquisition company, ultimately, they gather this money through an initial public offering of a shell company with the promise ultimately to acquire a successful public or private company, I'm sorry. It's almost putting the cart before the horse, so to speak, in that case. Whereas with a SPARC, it pushes that risk out a little bit. Ultimately, SPARC investors, you get the right to buy shares in a blank check company, but that's after the target is announced so there's a little bit more certainty there. Now, it's not to say that it's necessarily better or worse, but it does give you a little bit more clarity, a little bit more information. So I think from that perspective, it makes a lot of sense. When you consider Ackman, the SPAC that he tried to launch last year, obviously, that didn't work out, probably left some investors feeling a little bit bitter, right?

Deidre Woollard: Yeah.

Jason Moser: I think SPACs, generally speaking, we saw investors lose more than they made for the most part, and I know I'm in on that club.

Deidre Woollard: Same.

Jason Moser: We've all probably experienced it to a degree, so I think from that perspective, a SPARC makes sense in that it helps maybe give a little bit more clarity and take a little bit of that risk away that exists with SPACs.

Deidre Woollard: The interesting thing here is you get warrants to purchase, as you mentioned, so it brings you a little bit closer to being on the inside as an investor, it sounds like to me. It's interesting because obviously, we've both seen SPACs and invested in them and the market has gone away from them now. Do you think that if this is successful, this opens the door to more of these? Does this become the new hotness at some point?

Jason Moser: Well, it's certainly possible, but I don't think so. A SPARC is still a SPAC after all.

Deidre Woollard: It's true.

Jason Moser: It's like that fool me once shame on me, right?

Deidre Woollard: Yeah.

Jason Moser: Or fool me twice, shame on me. I do feel like it has potential in its clarity. I think at least giving you that clarity and pushing that risk out a little bit could be helpful. But at the end of the day, it's still a very speculative structure there, so I don't know that investors are necessarily clamoring for this right now though.

Deidre Woollard: Especially, it's an interesting time in the market right now. Ackman, obviously, he needs to find the targets. He says he's on the lookout for companies that are seeking to raise 1.5 billion. He went on X, formally Twitter, over the weekend asking anyone who was interested in a quick yes or no to call him speculation here. Do you think people are picking up the phone or sliding into the DMs [laughs] to offer him a potential?

Jason Moser: That made me think of that Progressive commercial. What's sliding into someone's DMs? That sounds like a lot of fun. I have to believe there is some interest, at least in learning more. Investing is all about opportunity, and so there are plenty of folks out there I think at least interested in learning more. Like anything else, there is fair criticism of the IPO process in looking for better ways to do things or at least improving upon those ways. From that perspective, I'm sure there is some interest, but as we're seeing with the IPO market right now, everybody's on the sidelines waiting for a little bit more certainty regarding that macro picture. So I think that probably is the dark cloud hanging over all of this right now, it's just the uncertainty out there regarding the greater macro picture, the economy in general, the consumer, there are a lot of signs out there that things might be slowing down which may keep this on the back burner for a little while.

Deidre Woollard: Yeah. We've got a confluence of factors because, of course, we have student loans, we're somewhere between a soft landing and a recession depending on who you ask. But we did have a couple of relatively strong IPOs recently, we had Instacart, we had ARM, we had Klaviyo. Birkenstock, announced the pricing for theirs this week, looking pretty rich at between $44 and $49.

Jason Moser: Footbed technology.

Deidre Woollard: Right? Footbed Technology, a 200-plus-year-old company. Do you think Ackman is making his plea at a time when maybe the IPO market is coming back?

Jason Moser: Maybe. I mean, I think people looking at these things, I think most investors look at these SPACs and these SPARCs obviously with some trepidation right now because of what's happened over the last couple of years. Going back to, yes, SPARC is still a SPAC, and so I mean, it's something to keep in mind. Market conditions are clearly making it very difficult for growth companies to go public right now, evaluations at least to get them to where they want to go. It all really does boil down to dollars and cents and if companies feel like it makes more sense to hang on the sidelines and wait for conditions to get better to where they can raise more money, I don't know that a SPARC is really going to ultimately change their mind. It certainly is something I think investors will consider that I'll get out there and maybe learn a little bit more about what options are out there and if a SPARC is something that could help them ultimately get to where they want to go. But I think right now, generally speaking, I think we're going to see a lot of companies still hanging on the sideline because the conditions are just so difficult right now for those growth companies to get out there and be public companies.

Deidre Woollard: Yeah. Are you one of those people who tends to invest in IPOs or are you one of those people who waits a year?

Jason Moser: I am typically one of those people who waits. For the most part, I give myself several quarters to learn about the business and learn about management, and ultimately, see if management is able to do what they say they're going to do. Now, like anything, I have fallen prey to my emotions at times. I mean, sometimes, you feel like maybe you have a grasp on something that maybe a company is the real deal and you want to get in there at the early stages, and that rarely works out very well for me. For the most part, patience has always worked out better than the alternative.

Deidre Woollard: Yeah, I think so. One of the things I learned is that even if a company is older, like a Birkenstock, it's still going to change a lot during the first year it's public.

Jason Moser: Yeah. I mean, it's such a different life being a public company. I think a good example of this is just in watching Panera through its years, private then public and now private again, and you hear discussion of possibly going public. It gets confusing at this point now because I think there was even a point where Panera was talking about a SPAC, I don't even know if they actually went through with that or not, but you saw Ron Shaich, the founder of the company, just talk about how living life as a private company, it gives them the freedom to be able to do what they want to do without really necessarily being under the microscope. But when you go public, man, you are under that microscope and there is just no escaping it.

Deidre Woollard: Well, one company that was public and now isn't, was on Ackman's radar, he likes to get attention when he's got something to promote. He talked about taking X, formally Twitter, public again if Musk wanted. I don't think Musk wants that, but what do you think? What are the odds here?

Jason Moser: I don't know, Musk could. It's interesting to consider the state of Twitter/X. You wonder what the reality of the situation versus the narrative that Musk continues to portray. I don't know what the reality of the situation is there other than we do know that the company is still burdened with a tremendous debt load. I think it's something in the neighbourhood of $12.5 billion in debt that I think seven financial institutions bear. I think even if a deal were to happen, it would be very complicated to get done. I do wonder at times if Musk doesn't have buyer's remorse here, he's throwing everything at the wall with this app at this point. But I think if Twitter wanted to go public again, I think they could, but they would really need to present the value proposition in what it aims to be, this everything app. Give us some concrete details as to what that really actually means, don't just say a bunch of words. Tell me what that everything app vision ultimately means, tell us how you're going to get there, and tell us what it ultimately means to the business. Connect the dots. If you can do that in a way that is plausible, then maybe there's some investor interest in there. But we've already seen this play out. Social media is a very difficult investment and I think that we saw the challenges that Twitter dealt with through its life as a publicly traded company, I don't know that those challenges do anything but get greater at this point. If he takes this thing public, then you have to deal with the headline risk that comes with Musk.

Deidre Woollard: Yeah. That's true. Whenever anyone says super app now, I put my skeptical hat on.

Jason Moser: That's a good red flag. We've seen enough companies try for that super app strategy and quickly realize maybe that wasn't the smartest thing to do. PayPal stands out to me as one where initially you thought, wow, yeah, that makes a lot of sense. Super app. Just be able to do all of this stuff that you want to do, and then you start thinking when PayPal wanted to introduce stock trading within this app, why would you bother with that? Nobody care. There are already a million other options out there, no one is going to switch from TD Ameritrade just to go start doing their trading from PayPal, for example, or from wherever you do your brokerage, wherever you do your investing activity. I mean, that super app term I think is a red flag to keep an eye out on.

Deidre Woollard: Well, Ackman did wind up his media tour after being on Twitter all weekend. He was on CNBC this morning, he says the Fed is likely done with hiking, who knows? The economy is slowing, yeah, probably. But, in general, we see a lot of pronouncements by investors and sometimes, how much should we think about them, even when it's someone like Buffett, even when someone like Ackman with a track record? What's your take? How do you view those?

Jason Moser: Well, we all have opinions. Ultimately, at the end of the day, that's investing. It's a big disagreement and everybody thinks that they're right. To me, I try to always keep an open mind. I think it's interesting to listen to what people have to say. I try not to be dismissive, but rather be constructive with the information that you get. It's either something that you agree with or you disagree with, but I think this is all prognostication. For me, I don't know that it matters whether it's Buffett or whether it's Matty Argersinger. I mean, they're two investors that I respect highly. I know Matty better. I'm probably [laughs] going to listen to him first, because I tend to work with him more frequently. But I think at the end of the day as an investor, it just really, to me, it's all about just keeping an open mind. You can agree, you can disagree, but take the information that you're being given, take the opinions that you're being given, and ultimately, let that shape your thinking. When you make decisions, make decisions based on your thinking, and often that thinking is a compilation of all of these things that you gather from the people, the investors, the world around us.

Deidre Woollard: Wise advice. Thanks for your time today, Jason.

Jason Moser: Thank you.

Deidre Woollard: At Motley Fool Money, we love talking stocks and looking for the next big thing. That's why we bring analysts like Jason Moser on the show. By day, Jason Moser is also part of a team picking stocks and providing coverage for the Motley Fool suite of premium investing services. If you're looking for investing ideas, we're offering Motley Fool Money listeners a discount on our flagship service, Stock Advisor. With Stock Advisor, you get two stock recommendations per month, access to analysts like Jason Moser, our members-only livestream Motley Fool Live, and Stock Advisor's full scorecard of stocks generating market-beating returns. To learn more, head to www.fool.com/mfmdiscount.

What is behind the United Auto Workers strikes? If you want to know the reason for someone's actions, find out the incentives. Mark Robinson is the principal consultant at MSR Strategy and an expert in game theory. Before that, he worked at General Motors for three decades, including in leadership roles. Ricky Mulvey caught up with Robinson to understand the rules of the game in this strike, the union politics, and what it's like to try to make a deal with the UAW. 

Ricky Mulvey: I know that you're a game theorist and that's what you've brought to the previous negotiations. That's what you do at your consultancy. For someone who's less familiar with game theory, why is this a useful framework, especially for a complex negotiation like the auto union has with the automakers?

Mark Robinson: I've got to stress that it's not the kind of game theory that most people get taught in business school or in an economics class. It's not two players with one lever each. In the real world, there are often many players, each with levers at their disposal. There are some very useful techniques that essentially think through systematically who's involved, what they can do, and what they want. You can handle issues with 5-7 players and up to 25 levers or 30, and really think through extremely complicated situations by systematically thinking through, from the perspective of each party, what's truly important to them. It doesn't have to be based on financial importance. It can be as in the case, for example, of a union negotiation, the union leadership is very concerned about retaining their political credibility and winning the next election, if you will, for union leadership. It allows for you to think about both where things are heading. If you're advising a company, you can suggest strategies and tactics to help things turn out better.

Ricky Mulvey: You know that the next selection for the Union is very important for Shawn Fain and the UAW leadership, and you know that perceived toughness, as you've written about, is incredibly important to these leaders. I know the big three aren't all the same, but how would you advise the big three automakers on negotiating with that in mind, that that's really important to these union leaders?

Mark Robinson: The basic advice is patience, and to protect their reputation as best they can. Ford, clearly, is eager to settle. Was eager to settle even before the strike started. But there is no way that any settlement that Ford would find acceptable would be acceptable to Shawn Fain for weeks to come. It's no surprise that Shawn Fain is in the process of adding additional assembly plants, including ones at Ford. He'd spared Ford last time, but he's going to add pressure at Ford because he needs to demonstrate to his members that he is going to the maximum extent to get as many of the demands as possible.

Ricky Mulvey: The big three are often lumped together, but they are very different. Well, I shouldn't say very different. They all make cars, but they are different companies. How is Ford in a different position than Stellantis and General Motors in this union strike in particular?

Mark Robinson: Ford has more UAW members than either Stellantis or GM. It also has historically viewed its relatively good labor relations as a strategic advantage compared to General Motors. GM had a 40-day strike in 2019, but even without that, historically, GM just had much more difficult labor relations, and Ford, essentially, cultivated a union relationship. One of the things I think they found very frustrating this time around is that isn't doing any good with the new leadership.

Ricky Mulvey: There's a lead negotiator with UAW for Ford. His name's Chuck Browning, and you've also written about how even though that in any other time, maybe the agreement that he's reached with Ford would be acceptable to previous iterations of union leadership, this time it's not, and it's because maybe some of the political moves that are going on behind the scenes.

Mark Robinson: Yes. Well, I don't know that he's reached an agreement with Ford. I think, though, that Ford in its settlement in the union in Canada showed that it was willing to make major strategic concessions as well as give significant wage increases. They agreed to bring new employees back on defined benefit pension plan, for example. They agreed to bring in a cost of living adjustment formula. Those are massive strategic wins for the union. Ford is clearly willing to go that far, and Shawn Fain already talks about some other strategic concessions that he says Ford has already offered. It's more that based on Ford's history, and based on what is public, that is pretty clear a deal could be very close that would be a big win for the union. But Chuck Browning backed the other guy in this very close election that was held by the UAW this spring. Shawn Fain won the first direct election in UAW history, but just barely. It was the runoff and he just barely squeaked through in the runoff. Chuck Browning is the only member of the other side, one who backed his opponent, who is one of the chief negotiators in this particular round. That creates a political dynamic. Shawn Fain may be correctly worried that Chuck Browning would consider running against him next time.

Ricky Mulvey: As a game theorist, one of the things you're thinking about is levers. The levers that each side has, the union and the carmakers. What are some of the most important levers in this negotiation for observers to watch?

Mark Robinson: The key thing that the union leadership is worried about is ratification. In 2015, there was a absolutely disastrous negotiation round where the union members were essentially trained to say no, to reject the contract. They did that at Stellantis and got a better deal without a strike. The skilled trades did it at General Motors, they got a better deal without a strike. Shortly after the negotiations ended, they rejected it and next year, 97 percent of the members rejected a contract the union leadership recommended. They got a better deal after a one-day strike. That destroys bargaining. That destroys union leader credibility. The 2019 strike basically became inevitable because the union leadership essentially had to be sure that they didn't get a contract offer rejected by the members. I'm sure that Shawn Fain is still worried about that this time around. It's that union leader, union member dynamic that is a key driver of how this will play out. It's very hard to see how this ends. I'm pretty confident it's going to end at least a forward sometime around Halloween. Why is that? Because the union members start feeling a lot of pain and it would be a disaster for all of them if they were still on strike at Christmas time. They get six or seven days paid vacation at Christmas time and they don't want to be out on that. For example, it's interesting that Shawn Fain wants to have this instead of being a four year agreement to be a four year and eight month agreement so that the next time around, it expires in May rather than in September and he doesn't have to worry about the holidays and the constraints that imposes on him as a bargainer, as a union leader.

Ricky Mulvey: That makes a lot of sense. For as much bluster as you hear on both sides, it's important to remember that this is not a zero sum game. This is two parties hoping to reach a mutually beneficial agreement. Speaking of strategy, usually, when you were at General Motors and you had experience negotiating with the UAW, the playbook seemed to be that they would go after one automaker at a time and then bring the contract to the other two. We've already got it done here, and now we can just sort of copy and paste. Now the strategy among the UAW is to go after all three at once and these targeted strikes. They're not completely depleting their strike fund, but they're able to find pain points at all three auto manufacturers. As a game theorist, what do you think about this more chaotic approach of going after all three automakers at one time?

Mark Robinson: I think it makes lots of sense politically for Shawn Fain this time around. He's now the most famous labor leader in America. He's the most famous UAW leader since Walter Reuther died in 1970. He had Joe Biden marching with him on the picket line. Doesn't get much better than that for a union leader. He successfully shaken things up. I'm less convinced that this is a good strategic move for him. It's very good tactics, but it doesn't necessarily lead to a good end game. For example, I do expect them to settle first step forward, and then try and do something similar to the previous rounds. But those companies will already have been on strike for a long time. The easy negotiation and quick ratification, well, that's still going to be very painful for those companies because it takes two weeks to negotiate and then a week or so to ratify, and you've still got your workers out. It's a much different dynamic. It's more costly for people. But I would say that to date, one thing they're doing relatively well is they're firing shots across the bow. The initial plans were important, but not vital to the companies striking the park distribution center. General Motors ran the park distribution centers with salaried workforce during the last strike. Those are steps that create a lot of publicity, create a lot of noise, but don't necessarily seriously damage the companies. The ones he's announcing today will be a further ratchet up, but I would be very surprised if he were adding full size truck plants today, speaking on Friday. He's taken measured steps rather than trying to maximize the pain. I expect this to continue but eventually it will hit the full size truck plants. That's a key metric for when is he trying to really hurt the companies. As soon as the F150 or the Chevy Silverado plans go down, that's the signal.

Ricky Mulvey: Mark, you've been at these tables before with the negotiations on the side of General Motors. Again, to generalize, let's say it's my first day as an executive at General Motors Ford or Stellantis. I've packed my lunch and what didn't you know it, I'm at the table where there's a UAW strike to negotiate. What career advice would you give that person?

Mark Robinson: Find something else. [laughs] It's a very frustrating task. You spend a lot of time bargaining. You've got to be patient with a lot of the, I'd almost call a Kabuki play. There's this whole elaborate dance that needs to go on. It's very difficult negotiations. It's often not being settled at your table, it's really only being settled at the very senior levels for most of the critical issues. It's a necessary part of what a group at General Motors has to do. You absolutely have to deal with the union, but most executives have jobs more related to building and selling cars rather than dealing with the union.

Ricky Mulvey: Last question. As you've watched this story play out, and having a deep knowledge of what's going on with both parties, what do you think is the biggest misunderstanding among observers in the media with this current UAW strike?

Mark Robinson: They think that it's due to the electric vehicle transition. I think that has very little to do with this strike. That's something that Donald Trump blamed for the strike. It's something that a lot of the Republican candidates are blaming. The EV transition is certainly something that has led to the companies having made a bunch of investments announcements. They don't have a lot of flexibility now and they also have committed a lot of funds already and the plants that they're going to build these vehicles and the batteries and so on. It's a complicating factor, but not the big driver. The union politics are what the big driver is. This is the result of the change in the election practices and the past corruption at the UAW. 

Ricky Mulvey: Mark Robinson is the principal consultant at MSR Strategy. Before that, he was an economist at General Motors where he worked for three decades. Thank you so much for your time and your insight and sharing your experience with us listeners on Motley Fool Money.

Mark Robinson: A pleasure to talk.

Deidre Woollard: As always, people on the program may have interest in the stocks they talk about, and the Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. I'm Deidre Woollard. Thanks for listening. We'll see you tomorrow.