- Bill Ackman will return PSTH’s $4 billion of cash to shareholders if his SPARC gets the go-ahead.
- The Pershing Square chief paraphrased a Warren Buffett quote to explain his decision.
- Ackman wants to focus on his new acquisition vehicle because of a shareholder lawsuit against his SPAC.
- See more stories on Insider’s business page.
Bill Ackman will return his SPAC’s $4 billion of cash to investors if regulators approve his next-generation acquisition vehicle, he revealed in a shareholder letter Friday. The billionaire boss of Pershing Square Tontine Holdings (PSTH) paraphrased a Warren Buffett quote to explain his decision.
“If you find yourself in a leaky boat, often times you are better off switching boats than patching leaks to complete the mission,” Ackman tweeted.
Buffett used the same analogy more than 35 years ago. “Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks,” the Berkshire Hathaway CEO advised in his 1985 shareholder letter.
Ackman recently scrapped PSTH’s deal to buy 10% of Universal Music Group due to regulatory pushback, and restarted his search for an acquisition. He’s now planning to focus on his special-purpose acquisition rights vehicle (SPARC) because of a shareholder lawsuit.
The complaint accuses PSTH of operating as an illegal investment company, as it invested its IPO proceeds in Treasury bonds and money-market funds. Ackman dismissed the claims as “meritless” in his letter. He described the shareholder behind it as an “unwitting prop” being used by two law professors and their lawyers to sue PSTH in an effort to reform the SPAC industry.
The Pershing Square chief noted that hundreds of other SPACs have invested their shareholders’ cash while they sniff out a deal. He warned the litigation could scare off potential merger partners and have a “chilling effect” on other SPACs going public or agreeing acquisitions.
The investor added that PSTH’s ability to complete a transaction was “impaired” by the lawsuit, especially as the SPAC only has 11 months left to strike a deal. However, he declared that he wouldn’t cave under pressure and settle.
Ackman softened the blow by assuring PSTH shareholders that “all is not lost.” He expressed confidence that his proposed SPARC – which wouldn’t tie up investors’ cash or face a two-year deadline like a SPAC – would be approved by the Securities and Exchange Commission.
If the SPARC and its warrants get the green light, Ackman plans to hand PSTH’s $4 billion of IPO proceeds back to its shareholders. The company would distribute $20 in cash per share plus the market value of a SPARC warrant, enabling shareholders to buy into his new vehicle, he tweeted.
Ackman’s nod to Buffett is no surprise as he’s a longtime admirer of the investor, and his hedge fund held a $1 billion stake in Berkshire as recently as March 2020. However, Ackman and his team exited that position after they learned that Buffett hadn’t snapped up bargains when the pandemic tanked markets.
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