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Ackman Says He “Respects” SEC’s Decision To Kill His SPAC’s Deal With Universal Music

Courtesy of ZeroHedge View original post here.

Update (0835ET): In an interview with CNBC Monday morning, Bill Ackman told the hosts of Squawk Box that the SEC had raised “deal killer” concerns. As a fiduciary for the Tontine, Ackman said he did his best until the SEC stopped the deal. Any Tontine shareholders who are “upset” by the firm’s decision to walk away should complain to the SEC, Ackman said.

“I’m not in anyway critical of the SEC. I wanna be really clear. We have the best capital markets in the world… I respect the SEC’s judgement in this…at the end of the day everyone is happier.”

He added that Vivendi had asked him if his hedge fund could take the Tontine’s place as an investor in UMG, to which Ackman agreed after the SEC scrapped the deal with the Pershing Square Tontine.

Ackman defended UMG as a fast-growing business with juicy profit margins, comparing its steady profits with the cash-burning modus operandi of streaming services like Netflix.

“If I had to pick something in the content space…Netflix is amazing but they have to spend billions of dollars on content…” Ackman said.

Commenting on his firm’s record, Ackman said “we have had some very high profile failures, but you can count them on one and a half hands…but our batting average has been over 95%.”

“The probability that Universal is going to be a very profitable investment over the next five years is very very high,” Ackman added.

Afterwards, Andrew Sorkin brought up Ackman’s infamous “hell is coming” comment in a question about how he is thinking about the Delta variant.

Ackman said “think of the delta variant as an injection of the virus…or a vaccine for everyone who isn’t getting a vaccine. Look at the UK…now more than 90% of new cases are delta cases. The Delta variant has an R-sub-zero close to 8, which according to Ackman is “close to the measles.”

Still, Ackman insisted that “you’re going to see a massive economic boom… on the margin there will be some people afraid of getting the vaccine and will be afraid of going out. I think companies are going to insist on vaccines and I think it’s a good thing. At my own company there are three people who haven’t gotten the vaccine. In one case, there’s a philosophical objection maybe a religious one. But if you take an antibiotic for other types of infections then why wouldn’t you take a vaccine.”

As for Pershing Square’s vaccine policy, Ackman said he is “doing my best to convince everyone who hasn’t gotten the vaccine” to take it. But he still has a handful of holdouts within his firm.

They then moved on to the subject of inflation, to which Ackman agreed with Jeffrey Gundlach and others that inflation isn’t “transitory”, and that the CPI and other inflation metrics don’t accurately reflect the true acceleration in price pressures in the US.

“I’m in the ‘new normal’ camp. Talk to a home have to have a friend who knows the CEO in order to buy a home.”

“The CPI and other inflation numbers really understate what’s going on…there’s housing inflation, there’s real wage inflation…this isn’t a transitory thing at all,” Ackman said.

As for hiring, “it’s harder now because of the stimulus…but it might get easier come September but still…I think you’re going to have to pay people to come to work.”

And with Treasury yields plumbing new multimonth lows, Ackman said: “I think rates are going up…come the turn of the year…I think we’ll have meaningfully higher yields…”

Watch a clip from the interview below:

* * *

Bill SPACman is about to have some explaining to do to an army of frustrated retail shareholders in his SPAC who have anxiously watched its post-offering premium shrink with a growing sense of trepidation.

In a statement to shareholders in his SPAC – Pershing Square Tontine Holdings, or PSTH – Ackman announced on Monday that a deal between his SPAC and French conglomerate Vivendi to purchase 10% of Universal Music Group (which Vivendi is planning to spin off into a separate business controlled by a conglomerate of investors later this year) has fallen apart.

The deal for UMG would have been the biggest SPAC deal in history, according to CNBC. However, its complexity troubled regulators, and increasingly aroused opposition from investors. Dimming demand has seen shares of PSTH fall 18% since the deal was first announced in early June.

But there’s a twist. Ackman isn’t backing away entirely (UMG is after all an extremely profitable business, made more so by the advent of streaming services like Spotify). Instead, the wealthy investors in Pershing Square, Ackman’s hedge fund firm with more than $13 billion in assets under management, will walk away with a piece of UMG when the company lists on the Amsterdam Stock Exchange with an expected valuation of €35 billion. It will be controlled a consortium of investors, including Tencent.

As WSJ reported, the news marks an unceremonious conclusion to one of “the biggest guessing games on Wall Street” as investors tried to guess which target Ackman might pursue. Given his firm’s unparalleled largess, options appeared limited. Which is one reason why the structure of the PSTH-UMG deal was so complex. With UMG set to list publicly, the deal’s structure would have been exceedingly complex, as WSJ attempts to explain:

Mr. Ackman’s deal was different: New York Stock Exchange-listed Pershing Square Tontine Holding Ltd. didn’t intend to merge with Universal but instead become a shareholder ahead of an already-planned listing by Universal in the Netherlands. People familiar with the matter said it was structured that way because of tax and legal implications for Vivendi, The Wall Street Journal reported.

The structure was hailed by some as a feat of financial engineering that also freed Mr. Ackman from some of the usual constraints of SPACs.

Some observers, though, saw the structure as a concession to the reality that in an increasingly crowded SPAC market, and because of the relatively large size of the vehicle, Mr. Ackman wasn’t able to pull off a more conventional deal, as had been expected. In a sign of waning investor enthusiasm, Pershing Square Tontine shares have fallen 18% since the original transaction was announced on June 4.

After Ackman failed to strike merger deals with Airbnb and Stripe, reports of the deal to take a stake in UMG were greeted with celebration, at least initially. But investors and analysts quickly questioned whether the complexity of the deal, which would leave the publicly traded SPAC with a stake in another publicly traded company, would fly with regulators. Turns out, they were correct. In Pershing’s statement, Ackman cites the SEC’s misgivings as the main reason for scrapping the deal.

“Our decision to seek an alternative initial business combination (IBC) was driven by issues raised by the SEC with several elements of the proposed transaction - in particular, whether the structure of our IBC qualified under the NYSE rules.”

Ackman explains that he hadn’t anticipated shareholders’ apprehensions about the structure of the deal and its “potential impact on investors who are unable to hold foreign securities, who margin their shares, or who own call options on our stock.” Of course, as we noted earlier, Ackman isn’t leaving anyone “at the altar.”

“Yet, despite the inability of PSTH to consummate the UMG transaction, our counterparty was not left at the altar. Pershing Square will be fulfilling PSTH’s commitment to Vivendi.”

One rival institution appeared to question whether Ackman really believed the deal would succeed, Bloomberg reports.

“It was an ill-fated transaction doomed to fail and it did,” said Bluebell Capital Partners Chief Investment Officer Giuseppe Bivona, who had launched an activist campaign against the company earlier this year and still owns Vivendi shares. “There’s not much we know at this stage but it doesn’t seem to be just the change in entities. It’s not clear if Pershing Square is buying the full 10%.”

As Bluebell says, it’s unclear whether Ackman will actually walk away with 10% when the deal is finished. Vivendi says if the stake is less than 10%, it will sell an equivalent amount of shares to whatever is left on the table to investors ahead of the September listing. Given UMG’s market dominance – it controls 40% of the American music market – it’s likely the deal will draw considerable interest from institutional shareholders.

Ackman’s SPAC still has another 18 months to complete a deal, but given it’s size and the seeming shortage of suitable targets following years of frenzied dealmaking activity which has left slim pickings even for investors with a fraction of the money Ackman has to put to work.

He now as 18 months to strike a deal, or being forced to return capital to shareholders. Ultimately, it’s an example of retail investors being left exposed, while Ackman’s wealthy hedge fund investors are left with a stake in an extremely profitable business.

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