PSTH - Pershing Square Tontine

[Liberty]

Andrew Walker wrote a bunch about PSTH recently:

 

https://yetanothervalueblog.substack.com/p/breaking-down-the-ridiculously-complex

 

https://yetanothervalueblog.substack.com/p/further-breaking-down-and-simplifying

[fareastwarriors]

https://www.bloomberg.com/news/articles/2021-06-10/ackman-s-universal-music-deal-spurs-pushback-from-vivendi-holder?srnd=premium

 

Ackman Music Deal Spurs Pushback From Vivendi Shareholder

[bobp]

Sparc rights are imo not at all as valuable as warrants. They will give you the right to buy a target over a short period of time. A company that's not even trading and tough to value. The warrant gives you a five year period to buy a company that is ideally growing and appreciating in price. With the right you have to assume that Bill can pay $20 for something that will immediately trade higher.  Otherwise it's worthless. I say that the right has no time value. It's worth something, but only because of the Bill factor which I'm probably underestimating.

Someone mentioned the remaining $5.25 spac as the leftover cash from his primary target, UMG.  I wonder if he has a better or more traditional spac type target in mind but had too much cash. UMG gave him a way to use a chunk of cash in something that could be easily valued. And i'm sure he likes price. I'm just speculating. Doesn't rally matter, but if he can announce the other target before this deal closes it makes the free look in psth all the more valuable. 

 

 

 

 

Edited June 10, 2021 by bobp
opinion

[matthew2129]

1 hour ago, bobp said:

 I say that the right has no time value.

 

 

 

 

Yea I agree, this is precisely the issue 

[bizaro86]

16 minutes ago, matthew2129 said:

Yea I agree, this is precisely the issue 

I think the right has negative time value.

 

It is worth a "Bill Ackman pop" at some point in the future, within the next 5 years.

 

So the value is whatever you think that pop will be on day 1, discounted back to today by however long you think it'll take him to find a deal

[matthew2129]

9 minutes ago, bizaro86 said:

I think the right has negative time value.

 

It is worth a "Bill Ackman pop" at some point in the future, within the next 5 years.

 

So the value is whatever you think that pop will be on day 1, discounted back to today by however long you think it'll take him to find a deal

Yea maybe something in the ballpark of $1.50-2.50 fair value. I'll keep it on my watch list as I suspect it's the type of instrument that could easily fall to sub 50 cents at the first sign of the slightest market distress 

[TwoCitiesCapital]

I struggle to understand how a right to exercise on a deal @ $20 for 5-years w/o putting any money up until you have clarity on a deal ISN'T superior to a $23 strike on a $20 bucket of cash that IS tied up until a deal is announced. 

 

the universe of deals is the same so all that should matter is how much capital upfront, how much time it's good for, and the strike price - all of which are superior on the right. 

[Gregmal]

Yea IDK but if there's one thing we know about Bill Ackman its that he is deeply aware of his imagine and his reputation/ego are very important to him. he isnt going to screw anyone or do anything unfriendly. If you've followed him over the years its clear he kind of views himself as a benevolent, man of the people sorts. It is for that reason that this is a pretty safe SPAC and whatever company he finds will basically just be the equivalent of a real IPO. So I'd probably put a unit in the newco, on deal announcement, at something like $24-26 pretty confidently. Of course it depends if the right holders just get shares AND warrants if they participate, but thats probably were I'd put the right value. $3-5. 

[bizaro86]

1 hour ago, TwoCitiesCapital said:

I struggle to understand how a right to exercise on a deal @ $20 for 5-years w/o putting any money up until you have clarity on a deal ISN'T superior to a $23 strike on a $20 bucket of cash that IS tied up until a deal is announced. 

 

the universe of deals is the same so all that should matter is how much capital upfront, how much time it's good for, and the strike price - all of which are superior on the right. 

 

The fact the cash is tied up doesn't make any difference to the warrant price. The cash in trust doesn't belong to them, same as the rights.

 

The $20 strike is obviously better than the $23 strike. 

 

But the warrant is exercisable for years after the deal closes, while the right is only exercisable at the close. I think that extra time value offsets the higher strike price.

[matthew2129]

5 hours ago, TwoCitiesCapital said:

I struggle to understand how a right to exercise on a deal @ $20 for 5-years w/o putting any money up until you have clarity on a deal ISN'T superior to a $23 strike on a $20 bucket of cash that IS tied up until a deal is announced. 

 

the universe of deals is the same so all that should matter is how much capital upfront, how much time it's good for, and the strike price - all of which are superior on the right. 

An option that can only be exercised before you ever see the price in the underlying needs to be severely discounted imo. If TSLA was IPO'ing tomorrow at $500/share I probably wouldn't pay a single cent for the right to buy into that IPO b/c i wouldn't think TSLA would trade above $500/share. If I can see TSLA is already trading at $610/share, however, I would happily pay $100 for a call option to buy TSLA at $500/share 

Edited June 11, 2021 by matthew2129

[TwoCitiesCapital]

3 hours ago, bizaro86 said:

 

The fact the cash is tied up doesn't make any difference to the warrant price. The cash in trust doesn't belong to them, same as the rights.

 

The $20 strike is obviously better than the $23 strike. 

 

But the warrant is exercisable for years after the deal closes, while the right is only exercisable at the close. I think that extra time value offsets the higher strike price.

 

The warrant is tied to the value of PTSH underlying.  The right is tied to the value of the SPARC underlying.  While there will be NO publicly traded proxy for SPARC, SPARC would be more valuable than PTSH by virtue of having the same upside but no capital tied up for 1-5 years waiting for the upside - i.e leverage. Advantage goes to the right. 

 

I see what you're saying about the warrant existing after the deal. That is fair (and I had overlooked this), but the advantage of the compounding erodes as time passes with no deal. We were already a year in with no compounding. We still have $5+ in NAV/share NOT compounding post-deal. The compound value on the remainder is uncertain at best. 

 

On the other hand, the right extends duration by a year. That time value is worthless if a deal is announced in years 2-4, but it has value UNTIL a deal is announced because that extra year might be needed. Id call it a wash as to which has the advantage here as is entirely dependent on timing and growth characteristics of an unknown target. 

 

Lastly, the lower strike advantages the right over the warrant. 

 

I guess there are instances where the warrant might come out on top, but still seems that the right is superior in generalized scenarios. 

Edited June 11, 2021 by TwoCitiesCapital

[TwoCitiesCapital]

26 minutes ago, matthew2129 said:

An option that can only be exercised before you ever see the price in the underlying needs to be severely discounted imo. If TSLA was IPO'ing tomorrow at $500/share I probably wouldn't pay a single cent for the right to buy into that IPO b/c i wouldn't think TSLA would trade above $500/share. If I can see TSLA is already trading at $610/share, however, I would happily pay $100 for a call option to buy TSLA at $500/share 

But there's value to the optionality of turning it down. 

 

In this instance your choice in PTSH is to commit $20 to a deal, wait a year for them to announce that it's Tesla @ $500/share, and hope others are excited enough about that for you to sell your PTSH at NAV.

 

Or you could have SPARC and commit no capital at all to the deal, walk away when it's announced that it's Tesla @ $500. 

 

Option 2 seems better to me. Reduced downside with optionality to walk away at break even instead of a potential loss.  Thus if SPARC is > PTSH, then rights tied to SPARC > warrants tied to PTSH. 

Edited June 11, 2021 by TwoCitiesCapital

[matthew2129]

4 minutes ago, TwoCitiesCapital said:

But there's value to the optionality of turning it down. 

 

In this instance your choice is to commit $20 to a deal, wait a year for them to announce it's Tesla @ $500/share, and hope others are excited enough about that for you to sell your PTSH at NAV and get out. 

 

Or you could have a right and commit no capital at all to the deal, walk away when it's announced that it's Tesla @ $500, and flip the right for whatever the market is willing to bear. 

 

Option 2 seems better to me. 

Agreed Option 2 is better than Option 1. Bill originally said he was just going to give PSTH holders the right to buy PSTH 2 @ NAV, so this SPAR instrument is far superior. But the SPAR is still much less valuable than owning a 5 year ATM option or warrant since it evaporates upon the initial business combination is all I'm saying

[bobp]

13 hours ago, bizaro86 said:

I think the right has negative time value.

I meant to delete what I started but posted somehow so I think my only option is to edit, so ....... yes no time value makes sense to me. A warrant is good for five years after closing. That's it's value.

 

I will say that psth showed that the Bill factor was worth a lot. Warrants were imo always overpriced and common traded at $30 which is crazy. Common included 2/9 of a warrant so that's part of it, but still. The mania attached to psth could also extend to the right.

 

I think the common is worth a shot now. Little downside and optionality.

 

Edited June 11, 2021 by bobp
mistake

[Castanza]

 

 

OVERVIEW (not my work)

1 share PSTH converts as follows:

0.643 share UMG
1 (One) share PSTH RemainCo
1 (One) SPAR that will be a warrant for SPARC

Original PSTH 1/9 Warrants can be converted for more PSTH commons based on the chart on page 166 of the original prospectus (the ones you get with original PSTH pre unit split)

2/9 Tontine warrants roll over to PSTH Remainco and will be issued after the closing of the Redemption Tender Offer and before the closing of the Warrant Exchange Offer AND they will NOT be eligible to participate in the Warrant Exchange Offer.

UMG should IPO on or around 27th September and the shares of the publicly traded company will be distributed sometime between the last week of November and first week of December 2021.

"UMG will be one of the largest companies on the Euronext Amsterdam exchange and will become a member of several major global indices" (IMPLIES POTENTIAL LISTING NYSE)

SPARs are "free" they are received at "no consideration" and will trade as warrants on the NYSE.SPARs and SPARC are not guaranteed and still subject to SEC approval.

AFTER All of this is done then "RemainCo will undertake a 1:4 reverse stock split so that our cash net assets per share will be approximately $22"

This means that for every 4 shares of PSTH RemainCo you hold you will get 1 Share of PSTH but it will have a an increased NAV of $22 USD

TIMELINE

• End of August: Distribution of Tontine Warrants (1-Day Following Record Date)

• First week September: Distribution of SPARC Warrants (1-Day Following Record Date)

• Late Aug to Early Sep: Closing of UMG Share Purchase Transaction

• September 27th: UMG Listed on Euronext Amsterdam and 60% distribution to Vivendi Shareholders

• End Nov / Beginning Dec: Distribution UMG Shares to PSTH Shareholders

Edited June 21, 2021 by Castanza