The American billionaire Bill Ackman is forced to review the financial package of his SPAC. PSTH (Pershing Square Tontine Holdings), which panicked Wall Street this summer by raising the record sum of $ 4 billion, is in fact the subject of a complaint in federal court in New York, from a dissident shareholder, George Assad. However, this lawsuit compromises his chances of finding a company to acquire in the short term. A SPAC (Special Purpose Acquisition Company) is an empty shell that goes public to buy a target. He has a total of 18 months to do so. In this specific case, he has 11 left.
“Even though we believe the lawsuit to be without merit, its existence makes it unlikely that it will be resolved in the short term in our legal system,” said Bill Ackman. “The mere existence of litigation may deter partners from working with PSTH on a transaction until the lawsuit is resolved,” he added.
To avoid failure, Bill Ackman is prepared to return the $ 4 billion raised if the stock officer approves a new vehicle, a SPARC (Special Purpose Acquisition Rights Company). Unlike the SPAC, a SPARC does not raise money right away and has no time limit to complete a transaction. Bill Ackman will notify investors when he has found the ideal company, and they will exercise or not the warrants assigned to them. For the first time on Thursday, PSTH traded below the price of its IPO.
In June, PSTH, which wanted to buy 10% of UMG (Universal Music Group), the subsidiary of Vivendi, for 3.5 billion euros, had already considered an arrangement with a SPARC. But he had to give it up because his board of directors did not want to finalize the transaction, and preferred to look for a more conventional alternative investment. It is ultimately Bill Ackman himself who bought this share in the record company of Lady Gaga and Taylor Swift.
Dissident shareholder George Assad accuses Bill Ackman’s SPAC of operating illegally. PSTH would not be a traditional company. It would be an investment company which should therefore be regulated as such, in this case by the Investment Company Act of 1940, which is more protective for investors. This law requires the founders of PSPCs to disclose more information to the market and also limits the fees paid to sponsors. George Assad is defended by Robert Jackson, former commissioner of the SEC (Securities Exchange Commission) from 2018 to 2020 and John Morley, professor of law at Yale.
“Investing in securities is precisely what the company has done,” the complaint states. For Bill Ackman, PSTH simply owns or has owned US Treasuries and money market fund shares, like any other PSPC that has money to grow before it finds a target company. The complainant is also indignant at the remuneration paid to Pershing Square, which he describes as “staggering”, not only as a sponsor, but also as an advisor in the search for a target company. This represents, according to him, hundreds of millions of euros.
“This lawsuit could have far-reaching implications for the industry if the court determines that PSPCs are more generally to be considered investment firms. I am therefore skeptical of the success of the case, as the SEC has allowed PSPCs to operate for decades without registering as investment firms, ”said Virna Rizzo, lawyer at Cohen Amir-Aslani.
“Moreover, even if Bill Ackman’s gigantic SPAC is atypical, the judges, very experienced in these rated vehicles, know it well. The failed attempt to acquire a stake in Universal Music clashes with the initial objective of the PSPC, it is true, but that should not be enough to requalify this vehicle and to impose the obligations resulting from the Investment Company Act ”, adds Jordan. Le Gallo, lawyer in the same firm.