PSTH - Pershing Square Tontine

[ValueMaven]

talk to me at $19 ... retail pumped this thing to no end.  Still cant believe this traded over $30 at one point.  

[Spekulatius]

Is this really that complex? seems to me that he has some leftover cash and rather then returning it, he creates a new structure with some incentives for existing tontards to participate in that one too.

In a way, that a great way to reward shareholders if you like Ackmann. If you don’t there is no reason to hold trust units at a premium to liquidation value to begin with.

Now, I says an Vivendi shareholder need to find out if the distribution of UMG is indeed taxable. it seems that for Bollore (which owns ~27%) everything is fine either way (owners of more than 5% pay no tax) but for us peons, this could be a taxable event.

I sort of smell mother screw job here where Bollore dings the Vivendi shares and the uses weakness to buy up more. Vivendi itself has been buying back shares last week and it seems that their buybacks have picked up.

Hopefully, the tax issue will be resolved to everyone’s satisfaction. Vivendi has become a well run outfit, a bit like IAC in way, as they acquire stakes in fixer uppers business and then restructure them and then sell them off.

[Gregmal]

So the more Ive given this some time and thought, the more I am appreciating this ridiculousness of the transaction(s). I stand by the characterization of the UMG shares as a high quality return of capital. From there it basically resets the clock on everything and removes all the typical "SPAC" shackles....brilliant. 

However what I am still trying to grapple with is the warrants. They could potentially be very interesting. Are these not now de facto super warrants? IE holding warrants on both remainco and nextco? Except nextco warrants/rights strike at $20...so they'll basically be in the money right off the bat....if PSTH is any indication, there could be as much as $3-4 of intrinsic value. I am also trying to understand the potential strike reset. It would seem logical, especially since PSH holds a ton of warrants, pitches the tontine value, and also excluded UMG from impacting the warrants, that they should reset not to the mathematically derived 23-14.xx....but to a typical 15% premium to NAV...so low $6. You also can kind of get a glimpse at the value of the rights, $22 current price less 14.75 so the remainder is basically NAV +(right value + SpAckman premium)....

I see ALL of the incentives here at PSTH aligning favorably. I also wouldnt be shocked if he has a deal done by YE. Both fascinating and intriguing nonetheless. To quote the Batman movie...this may not be the hero we deserve, it was the hero we need. In a frothy market and crazy spac landscape...we need to let Bill be Bill. And Bill is one of the most gloriously opportunistic investors Ive even witnessed. Here's some high quality pre-IPO UMG shares(I dont buy that its not pre IPO bc theres public owners...PYPL wasn't priced into Ebay, among other examples) and now not one but two vehicles ready to roll. One vehicle completely removed of its restrictions. 

[Gregmal]

So essentially where I am getting on the warrants is you could take the easy road and just tender in which case you get converted and the pre UMG distribution PSTH currently translate to like $5 and change which is basically where its at now.

or

You hold tight and in that case it breaks down into what sort of conversion rate you get as a function of strike reduction and trading of rights/remainco once they get distributed....IF I am sifting through all this correctly! 

[Castanza]

 

[petec]

1 hour ago, Castanza said:

 

Yeah I just saw this. Looking forward to Greg’s calculation of the value of a perpetual rolling right

[hasilp89]

This is pretty much what all PE gps do with LPs when raising new funds right? He’s just doing it for the masses?

[golonginvestor]

The more I think on this the more I like this deal. It's pretty hard to get in a an IPO at the initial set price (although the current market price has a 10% premium on this). I think he used 3/4 of the fund because they would not give more then 10% ownership at this price.  Haven't looked at the companys detailed financials but I'm sure Ackman has done a valuation and is reasonable compared to anything else out there today. Plus the ability to perpetually participate on his future spacs with a Longer time horizon is pretty attractive as well. If markets get less frothy he may get something at a better valuation, a 5 year horizon seems like a more reasonable time period to do this.

Edited June 6, 2021 by golonginvestor

[Spekulatius]

3 hours ago, hasilp89 said:

This is pretty much what all PE gps do with LPs when raising new funds right? He’s just doing it for the masses?

@given2invest has a good summary of the deal here:

 

 

[Castanza]

2 hours ago, golonginvestor said:

The more I think on this the more I like this deal. It's pretty hard to get in a an IPO at the initial set price (although the current market price has a 10% premium on this). I think he used 3/4 of the fund because they would not give more then 10% ownership at this price.  Haven't looked at the companys detailed financials but I'm sure Ackman has done a valuation and is reasonable compared to anything else out there today. Plus the ability to perpetually participate on his future spacs with a Longer time horizon is pretty attractive as well. If markets get less frothy he may get something at a better valuation, a 5 year horizon seems like a more reasonable time period to do this.

I agree with this logic. Admittedly I haven’t gotten up to speed with this until recently, but the risk vs reward is intriguing; not to mention the uniqueness of the structure. The recent decline was a great buying opportunity if your timeframe is 5+ years. Seemed like a shakeout of all the week hands speculating on a quick option and hopeful exuberance for some “sexy growth deal”. 
 

I started a position when it dipped under $22 

[golonginvestor]

2 hours ago, Castanza said:

I agree with this logic. Admittedly I haven’t gotten up to speed with this until recently, but the risk vs reward is intriguing; not to mention the uniqueness of the structure. The recent decline was a great buying opportunity if your timeframe is 5+ years. Seemed like a shakeout of all the week hands speculating on a quick option and hopeful exuberance for some “sexy growth deal”. 
 

I started a position when it dipped under $22 

I added to my position at a price just under 22. My biggest concern is how my broker will handle this. As far as I can see they don't even support euro exchanges or warrants. Now we have warrants (I think thats what the SPARC is), euro exchange stock with (Universal Music), plus the continuation of PSTH.

[Gregmal]

More thoughts tying to hammer out the scenarios regarding warrants should you avoid the tender....

 

Say strike is indeed 23-14.75.....one, this largely doesnt makes sense and kind of screws the warrant holders...is there anything preventing a company from making an $18-19 deal, excluding some from benefiting from that deal, and then having a stub at $1-2 with a warrant at $4-5, IE as much of several hundred percent OTM? Its dumb, and kind of defeats the purpose of the warrant to begin with. However, if this is the case, maybe the PSTH stub warrant is worth IDK 50c -$1. But whats interesting is should the warrant entitle one to buy a PSTH share per the original terms, the PSTH share is entitled to the right. The right IMO should easily be worth $2-3....if its less than its highly undervalued. I would be interested to see if the rights have a conversion trigger. If not they are basically mini TARP warrant type instruments then, which is awesome. So in that worst case scenario you'd have a FV IMO on warrants post tender of $3.50-4, but realistically probably pretty close to something in the ballpark of the tender itself. You'd have a high hurdle on the PSTH warrant portion but be reasonably close if exercising the warrant at NAV because of the right. IE buy the shares at $8, theyre trading at 5s, get a $2-3 right as well. 

 

If this isnt the case, say strike can readjust to same 15% premium to NAV...which given the incentives and reset taking place with everything else, I dont see why they wouldnt do that...your PSTH stub piece is probably worth a few bucks if applying the same implied breakeven as they traded pre deal. Which then including the rights, makes them a bit undervalued. 

 

Ive seen a lot of places saying the rights are only worth $1-2, but I fail to see how this makes sense. Not totally apples to apples but the PSTH ws despite a 15% premium to NAV broke off trading at $6.5. Your breakeven being almost 50% premium to NAV. Why would your rights only be worth $1-2 despite being ATM? Sure, if you are forced to buy into the deal immediately after, you arent getting the torque you would but are rights able to remain trading post a PSTH 2 deal the way warrants do. Dont know there. If its an automatic deal then decision type of thing, the right would then kind of be a stable trading vehicle that simply marks the expected deal pop and nothing more. IE if one thinks there's 0 premium to NAV and 0 deal pop with rights would be worthless. 

 

Also as the fellow in the YT video mentioned, its important to determine whether stub PSTH has a redemption at NAV feature. Will the new warrants on stub PSTH have the same expiration and also what is the adjusted auto call strike? What if they do away with that? 

 

Kind of just brainstorming and throwing shit against the wall here because there are a bunch of unknowns. But still pretty fascinating and fun diving into all this. 

[TwoCitiesCapital]

4 hours ago, Spekulatius said:

@given2invest has a good summary of the deal here:

 

 

 

I'm not sure I agree with everything this guys says here. It seems he misunderstands certain parts of the arrangement - or maybe I do. 

 

First, he does bring up a good point that the adjusted strike in the warrant is a negative ($5 RemainCo getting to $8 strike is much harder than $20 PSTH getting to $23 strike). This is NOT something I had immediately considered and is a good observation. 

 

But

1) He seems to think the only value to the warrants is on that $5 remain co and it getting to $8 

2) He argues the SPARC rights are worth $1-3 by making the comparison to the current shares "with warrants attached" trading for $24-25 before the deal announcement. 

 

If RemainCo paid a special dividend or had a spin-off, the current PTSH warrants would get an adjusted strike or have exposure to the new spin-off as well as RemainCo.  I would think it would be the same for a rights issuance. So the reference securities for the $8 warrant strike price are both RemainCo @ $5 NAV and the value of SPARC rights. 

 

I also don't agree SPARC rights are only worth $1-3. His premise is flawed - the $24-25 PTSH traded at DID NOT have warrants attached. The warrants were already detached and traded $8+ pre-announcement. 

 

The SPARC rights SHOULD be more valuable than the PTSH warrants were because the

1) The Strike is $20 on a $20 NAV and not $23 on $20 NAV  

2) SPARC warrants will have more time value with the 5-year extension

3) SPARC holders get a peak at a deal prior to committing capital versus PTSH holders tying up capital in anticipation of one. There won't be a publicly traded SPARC reference, but if there was it SHOULD trade higher than PTSH meaning the SPARC rights should trade higher than the PTSH warrants did. 

 

Seems to me that $5-6 per warrant today is worthwhile since the SPARC rights themselves are probably worth more than that and you get the exposure to $5 RemainCo for free...

 

Edited June 6, 2021 by TwoCitiesCapital

[Gregmal]

^^ yea I kind of concur and if nothing else, in a simplified way, at worst it seems current warrants are basically just potentially getting converted from this deal to the next one with some free carryover to remainco. I mean further down the rabbit hole theres the question on the rights....do they entitle you to units(IE shares plus warrants) or just shares? 

 

There would definitely be some nuances to the rights that dont apply to the warrants. For instance a right generally has to be exercised when the capital is getting raised. IE in a typical spac I'd imagine that you'd have to exercise by deal close. In other words you dont really get any free leverage on the post close entity. Which is negative. However thats traditionally what happens. Traditionally spacs dont do insane deals like this. Traditionally you dont have stub spacs, traditionally your warrants get adjusted all every aspect of the corporate actions, IE you should theoretically have gotten UMG warrants too or be compensated for not getting them. So IDK. Guess we will see. 

[Krapdivad]

30 page analysis of the PSTH deal from Enrique Abeyta from Empire Financial Research with Whitney Tilson. 

He assumes some generous multiples in his valuation but does a good job of explaining the business, and what is happening PSTH with the UMG deal. 

 

https://assets.empirefinancialresearch.com/uploads/2021/06/The-Type-of-Investor-That-Can-Change-Your-Investing-Life-1.pdf

[gfp]

And for a real cash flow beast, Empire Research's parent company (a carve out from Agora which used to be called Stansberry before they whitewashed him from the company following a Netflix true-crime fiasco...) is going public through the SPAC Acendant Digital at a $3 Billion valuation: ACND.  Still trades below 10 but the vote must be coming up sometime soon.  Good old Scott Hall, whatever name they go by nowadays, was very familiar with the copywriting end of that business.  It's basically an ATM.

[matthew2129]

It's looking like buying commons and selling OTM leaps might be the play here. The LEAPS are still trading with IV of ~50% for a basket of 3 uncorrelated components. Once the OTM leaps are converted to special contracts I'd be surprised if there's even a bid

[Gregmal]

1 hour ago, gfp said:

And for a real cash flow beast, Empire Research's parent company (a carve out from Agora which used to be called Stansberry before they whitewashed him from the company following a Netflix true-crime fiasco...) is going public through the SPAC Acendant Digital at a $3 Billion valuation: ACND.  Still trades below 10 but the vote must be coming up sometime soon.  Good old Scott Hall, whatever name they go by nowadays, was very familiar with the copywriting end of that business.  It's basically an ATM.

ACND looks interesting, but there's a certain irony to phonies and frauds teaming up with a SPAC. Ive always thought the newsletter stuff was scummy. I have subscribed to a few over the years, but the stuff you run from is always the get rich quick or sensational story crap. Everything I see from them is "legend who called TSLA at $5" showing a picture of Tilson who ironically lost a fortune shorting Tesla, and those "Guy who called the tech crash and GFC makes huge call!" click bait. 

[gfp]

Oh yeah that's definitely true about the marketing and some of the products.  But the business itself is very good.  Tilson got lucky with getting equity in Beacon Street when he signed on to join the newsletter racket.  He will probably make more on this SPAC deal than he made for himself in his entire investing career.

 

I'm not sure I want to pay $3 Billion for an Agora carve out with Porter kicked to the curb, but the business is very very attractive and these guys are gurus at direct response email marketing.  They study what works and do more of that.  Based on the financials the company probably is worth at least $3 Billion.  Its important to look at cash earnings, as subscription accounting makes the cash economics look slightly less far along when in reality the cash is already in the till.

 

With so many garbage SPAC deals, at least these Ascendant guys found an actual grower drowning in owner earnings.  Might get interesting as they show a blip on deal expenses and digesting their most recent growth cohort.  They have good visibility on the life-cycle of a given cohort of new subscribers from Free -> one product -> multiple products -> boomers who pay them $10-15k a year

Edited June 7, 2021 by gfp

[Gregmal]

Guess someone figured out the warrants lol. 

[Xerxes]

On 6/5/2021 at 12:32 PM, Spekulatius said:

In a way, that a great way to reward shareholders if you like Ackmann. If you don’t there is no reason to hold trust units at a premium to liquidation value to begin with.

Now, I says an Vivendi shareholder need to find out if the distribution of UMG is indeed taxable. it seems that for Bollore (which owns ~27%) everything is fine either way (owners of more than 5% pay no tax) but for us peons, this could be a taxable event.

I sort of smell mother screw job here where Bollore dings the Vivendi shares and the uses weakness to buy up more. Vivendi itself has been buying back shares last week and it seems that their buybacks have picked up.

Hopefully, the tax issue will be resolved to everyone’s satisfaction. Vivendi has become a well run outfit, a bit like IAC in way, as they acquire stakes in fixer uppers business and then restructure them and then sell them off.

 

That is an interesting comment on IAC and Vivendi.

 

It piqued my interest; went to my Archives and pull out an article that I recalled I read on Bolloré from The Economist.

Vivdendi may have a straight story but its controlling shareholder does not. Interestingly according to the article: 

 

"Mr Bolloré is a risk-taker of the sort every economy needs. Investors who bought shares in Bolloré sa 30 years ago, soon after it listed, have made their money back 40 times over, compared with eight times for France’s cac 40 blue-chip index. Its market capitalisation is now €12bn. The empire around it comprises 457 businesses. A simple total of their market caps gets to nearly €70bn." 

 

Assessing Vincent Bolloré | The Economist

 

Edited June 9, 2021 by Xerxes

[matthew2129]

Where do people estimate the SPARs will trade? Considering they have to be exercised at the initial business combination (before you have any transparency as to where the underlying stock will trade) I think they must be significantly less valuable than options/warrants.  I can't imagine more than a $1 or so but I really have no idea

[TwoCitiesCapital]

2 hours ago, matthew2129 said:

Where do people estimate the SPARs will trade? Considering they have to be exercised at the initial business combination (before you have any transparency as to where the underlying stock will trade) I think they must be significantly less valuable than options/warrants.  I can't imagine more than a $1 or so but I really have no idea

I made the argument for the opposite above. I view the rights as being more valuable the the current warrants before the announcement and lay out my reasons why. 

[DooDiligence]

The comments are as funny as the splainer.

 

 

 

[matthew2129]

10 hours ago, TwoCitiesCapital said:

I made the argument for the opposite above. I view the rights as being more valuable the the current warrants before the announcement and lay out my reasons why. 

I agree that the $20 strike price is more favorable than $23, but the tenor is much worse than you suggest. The current warrants were supposed to be outstanding for 3-4 years post-merger, while the SPARs will expire the EARLIER of (i) 5 years and (ii) the initial business combination. Separately, I don't think the current warrants are a fair starting point--PSTH warrants traded 2-3x times more expensive than typical spac warrants (even after adjusting for PSTH's $20 NAV instead of $10 NAV) on the assumption that Bill would source a highly-hyped target. That didn't happen.  The Remainco warrants and SPARs will reflect expectations/premium more in-line with the market. If you look at Softbank warrants for instance (which are more expensive than most), they are trading at about $1.50 (and lower-tier sponsors have warrants trading under 75 cents).

Edited June 10, 2021 by matthew2129