PSTH - Pershing Square Tontine

[thepupil]

On 4/26/2021 at 3:17 PM, thepupil said:

I got greedy and covered my calls @ $1.50. This increases my capital at risk in PSTH (delta b/w trust value and px) from ~50 bps to 100 bps (650 bp position in common w/ ~16% downside to trust = 100 bps).

I'm just feeling frisky today. 

It's hugely expensive to the rest of the SPAC market, but I don't care. LFG Bill. PSTH to the moon!

 

 

 

For part of my position, I sold some December $50 calls for $0.95 today. this reduced my downside to trust value by about 20% in exchange for giving up the upside above $50. 

I hope that this was a terrible decision as that would imply 100% move in PSTH b/w now and December. 

[gfp]

https://www.wsj.com/articles/pershing-square-spac-nears-transaction-with-universal-music-group-11622756897?mod=hp_lead_pos2

[Gregmal]

Funny. Sell the news totally fits given all the hype around this. Bought a few warrants at 7.50 AH

[fareastwarriors]

Is this the grand slam we were expecting?

[gfp]

I don't think Universal Music Group was on many folks' short lists for PSTH.  Tencent has been buying in 2020 and 2021 at near this valuation.  Here is the recent Vivendi annual to check it out:

https://vivendi.digital-publication.com/document-enregistrement-universel-2020/en/

26x EV/EBITA at the rumored $42 Billion EV and 1.33 Billion Euros of EBITA in 2020 annual.

Edited June 3, 2021 by gfp

[Gregmal]

Yea I actually like this. I also like that the market doesnt. 

[Spekulatius]

Hopefully, Vivendi get’s a nice Pop. I am not sure why they go the SPAC route, because they already got approval from shareholders for a regular IPO/ spin-off.

[thepupil]

I put in a big order at $22 (would double position) but didn’t get filled. Trophy asset.

Edited June 4, 2021 by thepupil

[petec]

This feels...more complex than I was expecting!

Apart from anything else how does $4bn for 10% of a company with <1x net debt/ebitda (i.e., not net cash) add up to an EV of $35bn? EDIT: this was a dumb comment. EV is 35bn euros, not dollars.

Pershing Square Holdings, Ltd. Provides Update to Investors - Pershing Square Holdings, Ltd.

Edited June 4, 2021 by petec

[formthirteen]

Tencent bought 10% of UMG in March, 2020. Tencent also had an option of acquiring up to an additional 10% of UMG until Jan 15, 2021 in addition to the 10% they already owned.

I wonder if this is a good deal for ODET.PA and BOL.PSA? At least the market seems to think that the deal is bad for PSTH and good for ODET and BOL (both up today), or maybe I'm just imagining things.

Edited June 4, 2021 by formthirteen

[Spekulatius]

53 minutes ago, formthirteen said:

Tencent bought 10% of UMG in March, 2020. Tencent also had an option of acquiring up to an additional 10% of UMG until Jan 15, 2021 in addition to the 10% they already owned.

I wonder if this is a good deal for ODET.PA and BOL.PSA?

Vivendi VIV.PA is the direct owner (BOL. PA and ODET.PA benefit via VIV.PA) and it got a big yawn from VIV.PA, judging by the share price movement. I find this a bit odd, might add to my VIV.PA, which seems to be the best way playing this.

 

Edit - what is the purpose of owning UMG via Ackman's SPAC when you can own it later when VIV. PA spins it off in September?

Edited June 4, 2021 by Spekulatius

[TwoCitiesCapital]

6 hours ago, petec said:

This feels...more complex than I was expecting!

Apart from anything else how does $4bn for 10% of a company with <1x net debt/ebitda (i.e., not net cash) add up to an EV of $35bn? EDIT: this was a dumb comment. EV is 35bn euros, not dollars.

Pershing Square Holdings, Ltd. Provides Update to Investors - Pershing Square Holdings, Ltd.

Quite. The complexity will scare people off - which is nice. Means potential for a good deal here, but also means it's going to take work to wrap my head around all of the moving parts. 

I read through it twice and still don't quite understand all of the options for warrant holders. I see that there is a voluntary exchange/tender for PTSH common shares, but not sure what happens if you don't exchange/tender them. 

Is it like an options contract where it will be adjusted to reflect the ownership in PTSH, the Universal spin-off, and the ownership of the remaining SPARC co (which is in and of itself a right/derivative by the sounds of it)?

 

Edited June 4, 2021 by TwoCitiesCapital

[Xerxes]

2 hours ago, Spekulatius said:

Vivendi VIV.PA is the direct owner (BOL. PA and ODET.PA benefit via VIV.PA) and it got a big yawn from VIV.PA, judging by the share price movement. I find this a bit odd, might add to my VIV.PA, which seems to be the best way playing this.

 

Edit - what is the purpose of owning UMG via Ackman's SPAC when you can own it later when VIV. PA spins it off in September?

The Tencent angle is in fact the smaller Tencent Music (TME), the publicly-traded subsidiary, and not Tencent, the conglomerate directly. Perhaps the smaller focused TME is a better play than Vivendi. 

This whole thing is a bit too complex for me to put money in, but nice to read about it and learn something from it.

Edited June 4, 2021 by Xerxes

[petec]

The interesting thing to me is the seeming uncertainty around the value of the sponsor warrants. Seems like the juice to PSH's NAV might not happen.

That and the sheer size of SPARC. If they couldn't find a good use for all of the cash at PSTH's disposal, why set up SPARC at potentially twice the size?

[Gregmal]

My understanding on the warrants is that they'll tender for those outstanding, and then settle in shares with the remainder becoming remainco warrants after some conversion features. A lot to read so I'll probably get a more in depth handle over the weekend. But first thought was that the warrants were the inflated by speculators(traded at like $15 at one point) so they'll come down the hardest(a wee bit early at 7.50 lol but live by the sword die by the sword). But you'll effectively still have your exposure to the upcoming vehicle if my understanding is correct, alignment with the sponsor. Lot to break down here. Havent adding anything because I wanted exposure(which I now have) and also have sold puts with strikes between 20-22.5 spread over the next few months.Not really sure what type of investment I want to make of this whole thing, and would like to get a better understanding of where I think Bill's head is at with all of it. But its also so damn complicated that theres got to be an opportunity in there somewhere. 

[Gregmal]

I'd also add that I think the issue he was trying to solve was too much cash. The remainco will still be a relatively large spac. But I like my odds a whole lot better with him picking smaller companies than big ones. 

[petec]

13 minutes ago, Gregmal said:

My understanding on the warrants is that they'll tender for those outstanding, and then settle in shares with the remainder becoming remainco warrants after some conversion features. A lot to read so I'll probably get a more in depth handle over the weekend. But first thought was that the warrants were the inflated by speculators(traded at like $15 at one point) so they'll come down the hardest(a wee bit early at 7.50 lol but live by the sword die by the sword). But you'll effectively still have your exposure to the upcoming vehicle if my understanding is correct, alignment with the sponsor. Lot to break down here. Havent adding anything because I wanted exposure(which I now have) and also have sold puts with strikes between 20-22.5 spread over the next few months.Not really sure what type of investment I want to make of this whole thing, and would like to get a better understanding of where I think Bill's head is at with all of it. But its also so damn complicated that theres got to be an opportunity in there somewhere. 

I think you're talking about the Redeemable Warrants, which IIRC come with owning PSTH shares. I am talking about the Sponsor Warrants, which IIRC are held by PSH. On those the press release had this to say:

"Vivendi and PSTH are concurrently discussing additional transactions in which the Sponsor and its affiliates may acquire additional economic exposure to UMG by acquiring Vivendi securities and/or UMG securities following the distribution of UMG Shares by Vivendi. Alternatively, some or all of the Sponsor Warrants may remain outstanding at PSTH after the distribution of the UMG Shares."

I don't really understand what Vivendi's incentive would be to allow PSH to extract value from the Sponsor Warrants, given they were going to spin Universal anyway.

[petec]

11 minutes ago, Gregmal said:

I'd also add that I think the issue he was trying to solve was too much cash. The remainco will still be a relatively large spac. But I like my odds a whole lot better with him picking smaller companies than big ones. 

Agreed. Hence my comments about the monster SPARC.

[TwoCitiesCapital]

47 minutes ago, Gregmal said:

My understanding on the warrants is that they'll tender for those outstanding, and then settle in shares with the remainder becoming remainco warrants after some conversion features. A lot to read so I'll probably get a more in depth handle over the weekend. But first thought was that the warrants were the inflated by speculators(traded at like $15 at one point) so they'll come down the hardest(a wee bit early at 7.50 lol but live by the sword die by the sword). But you'll effectively still have your exposure to the upcoming vehicle if my understanding is correct, alignment with the sponsor. Lot to break down here. Havent adding anything because I wanted exposure(which I now have) and also have sold puts with strikes between 20-22.5 spread over the next few months.Not really sure what type of investment I want to make of this whole thing, and would like to get a better understanding of where I think Bill's head is at with all of it. But its also so damn complicated that theres got to be an opportunity in there somewhere. 

 

30 minutes ago, petec said:

I think you're talking about the Redeemable Warrants, which IIRC come with owning PSTH shares. I am talking about the Sponsor Warrants, which IIRC are held by PSH. On those the press release had this to say:

"Vivendi and PSTH are concurrently discussing additional transactions in which the Sponsor and its affiliates may acquire additional economic exposure to UMG by acquiring Vivendi securities and/or UMG securities following the distribution of UMG Shares by Vivendi. Alternatively, some or all of the Sponsor Warrants may remain outstanding at PSTH after the distribution of the UMG Shares."

I don't really understand what Vivendi's incentive would be to allow PSH to extract value from the Sponsor Warrants, given they were going to spin Universal anyway.

 

From the SEC doc: https://www.sec.gov/Archives/edgar/data/1811882/000119312521181943/d172721dex991.htm

Quote

As the Transaction is structured as a stock purchase and not as a merger, the Redeemable Warrants and the Director and Sponsor Warrants (collectively the “PSTH Warrants”) will not become exercisable for shares of UMG. As a result, UMG will not issue warrants in respect of any of the PSTH Warrants, and will not have any warrants outstanding.

....

The Warrant Exchange Offer would close prior to the record date for PSTH’s distribution of UMG shares such that warrantholders who participate in the exchange offer and continue to hold their PSTH shares will receive UMG Shares in the Distribution. Warrants not exchanged in the Warrant Exchange Offer will remain outstanding with a strike price adjustment according to the Warrant Agreement’s contractual terms.

Seems to me that warrants will entitle you to exposure to Remain Co (PTSH) AND the 5-year rights to purchase more of PTSH @ $20 in the event a deal gets done. You miss out on UMG exposure, but get an adjustment in the strike price to reflect it. 

Seems like we'll be retaining an adjusted strike warrant on the SPAC + 5-year at-the-money call option (right) OR you can tender them for the cash offer outlined on p.166 of the IPO prospectus. 

Haven't run the numbers yet to know what expected value of cash tender is and how that compares to the market value, but paying $5.50 for a 5-year warrant on a leveraged underlying probably has some pretty amazing convexity if a deal gets done on the remain co.  Particularly as potential dilution is diminished as more and more people tender the warrants. 

Maybe I'm getting my hopes up without fully understanding all the details yet, but this feels reminiscent of John Malone and the spin-off/warrants on Liberty Media. 

 

 

 

Edited June 4, 2021 by TwoCitiesCapital

[TwoCitiesCapital]

My best attempt to break it down: 

1 PTSH warrant @ $23 strike = $5.50 at current prices has a breakeven @ $28.50 per PTSH share

$28.50 breakeven needs to be <= 1 PTSH Remain Co ($5.25 NAV) + UMG share ($14.75) + 1 SPAR (5-year warrant on $20 purchase of SPARC) to be profitable investment

Since you don't actually get UMG shares, but an adjusted strike, we can rewrite it as 

$13.75 breakeven <= 1 PTSH Remain Co ($5.25 NAV) + 1 SPAR (5-year warrant on $20 purchase of SPARC) 

 

So the questions are

1) what happens to Remain Co as it's remaining listed and cash rich but not an actual SPAC any longer

2) What is the value of 5-year rights on SPARC. This is slightly superior to SPAC warrants (implicit floor of $20/share as no one will put up $20/share to receive less) so I'd expect them to trade in a slightly higher range than the current warrants did pre-deal announcement. Ultimately, a pop in SPARC to ~$30 on a deal announcement makes this a profitable trade w/o expecting anything from RemainCo. 

 

Seems a fair price currently @ $5-6.50 for the warrants, but the upside optionality probably isn't as a large as I was previously thinking. 

Edited June 4, 2021 by TwoCitiesCapital

[Gregmal]

So after a good bit of pondering I think I ve got to where I need to get in terms of the simplification of all this. What changed between yesterday and today? Well, its complicated! But in simplest terms...

I view this as a return of capital. Cash is trash though. Say what you want about how its "cheaper" to maybe buy this through some other vehicle with its own problems...but in a very simplified way, pre IPO shares in an iconic company/trophy asset are probably worth more than the current 8% premium to NAV or whatever. Additionally, for all the copycatting or cloning or whatever people call it that folks do, I am aware of no investor who buys mid-large cap, high quality names that you can immediately follow and over the longer run make a very respectable amount of money, on a more consistent basis, than Bill Ackman. Back when everyone hated him Chipotle still popped like 15% when he announced the position. Even super expensive DPZ popped like 6%. So again, put this into that perspective and its worth more IMO, not less than NAV. Otherwise, not much else really changes all that much. Folks had no problem paying 50% premium to NAV here in anticipation of a deal...well guess what? Thats still entirely in play. They're still doing a deal, they're just derisking your position and if anything, through the mechanisms of the redemptions, your value getting in has been enhanced. 

I get this needs to deflate though. There was a lot of retard money in this thing. When I started this thread I had gotten the units for something like a 7-8% premium to NAV. Added to warrants at 6.50 on separation. Sold the warrants between 8-9, and sold the common at about a 15-20% premium to NAV. Now we are right back at square one so just now I bought a good slug of PSTH shares at $21.70. I think this is poised to deliver and create a lot of value after this big reset and retard shakeout. Just my 2c.

Edited June 4, 2021 by Gregmal

[Gregmal]

Meanwhile, I'm like yo where's pupil at? In my head I picture...looking forward to his take.

 

Edited June 4, 2021 by Gregmal

[adhital]

https://www.barrons.com/articles/how-to-value-bill-ackmans-spac-deal-the-sum-of-the-3-parts-implies-30-upside-51622833744

[thepupil]

7 hours ago, Gregmal said:

Meanwhile, I'm like yo where's pupil at? In my head I picture...looking forward to his take.

 

Hahah I’m at a wedding at a vineyard this weekend, bought a few shares <$22 w/ no real work.

[petec]

I don’t have a strong view yet on Universal as an acquisition.

But I’m starting to think the deal structure is very smart. Ackman has:

1) picked up another high quality compounder for PSH at a reasonable price. 

2) kept the optionality embedded in PSTH, but with a more manageable amount of cash and no deadline.

3) created another huge 5y option.

In effect he’s given himself the ability to raise and deploy a huge amount of capital long after the other SPACs have gone and when prices are more attractive.