Bloomberg Markets 2021

Summary

Days after pulling Pershing Square Tontine Holdings' $4 billion deal for 10% of Universal Music Group, Bill Ackman sits down with Bloomberg to explain why the transaction collapsed. The interview is less a defense than a clinical walkthrough: the SEC first raised concerns about whether the newly created "RemainCo" would become an investment company, then delivered what Ackman calls a "dagger in the heart" by concluding that the structure did not meet NYSE SPAC rules. Rather than fight the regulator or renegotiate around the objection, the PSTH board unanimously decided to unwind.

Ackman is candid about the second-order damage. The PSTH shareholder base had shifted from the long-term investors he selected at the IPO to a crowd of levered, option-buying speculators attracted by Reddit enthusiasm and the prospect of a one-day pop. When the deal required a four-month trust-account hold on the Universal stock, those short-term holders sold, and the price fell. Ackman does not blame them; he says the transaction was not designed for them. His remedy is to return PSTH to its pre-deal state, keep the 18-month search clock running, and do a more conventional merger next time — while moving the Universal Music investment onto Pershing Square's own balance sheet.

The tone throughout is post-crisis Ackman: no grand claims, no counterattack, a willingness to describe a high-profile failure as a process mistake that can be unwound and tried again.

Full Text

Machine-generated transcript (ASR); minor transcription errors may exist. Speaker turns and paragraphing restored editorially — words unchanged.

Interviewer:

ackman's blank check company was dropping a roughly 4 billion deal to buy 10 percent of universal music group home to stars like taylor swift and lady gaga in a letter to investors in his spack ackman said the spax board unanimously decided not to move forward this after the sec privately took issue with several elements of the proposed deal that could have potentially blocked it including whether its structure met nysc rules now ackman says he still intends to become a long-term universal shareholder when the company owned by french group the vendi goes public in september his spac will now look for a new combination target and joining us right now exclusively to talk about that and so much more is bill ackman ceo of pershing square capital management bill it's great to see you this morning uh to be able to talk to you on a morning uh when this headline uh emerged and this deal has effectively been called off i i do know that your hedge fund will now step into the place effectively of the spac but tell us what happened

Bill Ackman:

sure so just to rewind um if we go back just a few weeks we announced the transaction and a couple weeks later before we signed the deal the sec came to us and said we have some concern about whether remaincode this entity we were creating was going to become an investment company in order to address the sec's concern we changed the structure of the deal to provide that we were going to contribute the stock that we purchased to a trust and we thought that would address the issue and then we signed the deal and then we pushed forward with the transaction and then actually in the last this week the last few days the sec raised i would say a deal killer which is they they said that in their view uh the transaction did not meet the new york stock exchange uh spec rules and what that meant but i would call that a dagger in the heart of the transaction and put you know tontine in a very awkward you know spot and uh you know we love universal we were excited to bring this deal to uh the persian square taunting shareholders um not being able to do the transaction uh we offered to take it off the hands of the public company that was actually built into the transaction the right to assign to an affiliate and uh we've uh also assumed an indemnity obligation some expenses so that we put tontine kind of back in the place where it was as if we hadn't done the deal and now we have 18 months to find another transaction and that one's going to be a merger you know this one we structure the

way we did really to accommodate the ability to acquire universal because we're so excited about the business and we wanted to be owned by our shareholders um sec didn't like it um and therefore we uh we're going to find we're going to do more conventional merger but our intent was to do a merger all along it was really uh vivendi's uh you know some issues on their side that caused us to structure the deal this way

Interviewer:

bill was this just too complicated uh you know i think a lot of us including myself struggled to be able to articulate and explain to the public what exactly uh this was it was very different in many ways than a traditional spat clearly uh the investors also uh felt perhaps that this was too complex because uh they they started selling effectively the shares and then and they and they fell in price

Bill Ackman:

sure so what happened was i think we really have two kinds of investors we went public we got to select all the investors and we picked investors who had a very long term orientation they wanted to you know they were kind of going to be partners with us and buying a business we own for the next you know multiple years in our case you know probably a decade or more and then i would say the reddit community got excited about tontine and a lot of shorter term investors came in and said look i want to bet on a deal being announced you know the day one pop a lot of those investors were levered a lot of those investors bought options and we announced a deal that unfortunately is very bad if you're levered or if you own options because when we uh the requirement to put the stock in a trust account is very uh detrimental of your margin holder it's also very detrimental if you're an option holder so we probably had none of those investors came into the ipo but by the time of announcement about a third of our stock i think was held by people hoping you know that we're gonna announce a transaction this stock doubles you know if you will the first day there are a lot of investors that have been investing in specs that way and i have no no issue with a short-term investor and we uh we didn't design the transaction to affect short-term investors but we were really focused on creating kind of long-term value what's interesting is all of these problems go away by the end of the year um you

know the issues that people were concerned about is one my stock that you buy and i'm going to get i'm not going to get for four months it's going to sit in a trust account we didn't like that but that was really something you know we had to do for regulatory reasons another issue universal i would just stick with it for one second but universal it was going to be a dutch listed company people didn't love that but we believed you know by the time that we distribute this doctor shareholders it would likely be hopefully be a new york stock exchange listed company so each of these problems if you could hold the stock for six months i think people would do very very well but unfortunately i would say a meaningful percentage of our investors needed to hold it for a much shorter period of time and the you know it had a negative impact on them and that that i think has driven the stock down

Shepard Smith:

shepard smith here thanks for watching cnbc on youtube

Key Themes

• Capital Allocation Discipline — returning the SPAC's capital rather than forcing a structurally blocked transaction
• Volatility vs. Permanent Loss of Capital — the stock price dropped, but the underlying Universal Music thesis remained intact and was folded into the main fund
• Concentration as Risk Mitigation — the long-term, partner-like shareholder base was diluted by short-term, levered speculators
• Simple, Predictable, Free Cash Flow — Universal Music is held out as a decade-plus holding precisely because its economics are durable

Context & Significance

This interview sits in Act IV, the renaissance, but it is not a victory lap. It is Ackman applying the post-Valeant discipline to his own idea: when the facts change and the regulator kills a structure, you do not double down on cleverness, you return capital and start over. The PSTH-Universal episode was a public failure for a vehicle that had been marketed as a cleaner, long-term-oriented SPAC. Ackman does not pretend otherwise; he names the SEC objection a "deal killer" and acknowledges that a meaningful slice of his investors needed a shorter holding period than the deal required.

The honest retrospective is that the structure was genuinely novel — too novel for its regulatory moment — and that novelty created a shareholder base Ackman did not choose. The interview documents the lesson being learned in real time: the right asset (Universal Music) could not survive the wrong vehicle, and the right response was to separate the two. That he still intended to become a long-term Universal shareholder through the main fund shows that the renaissance mindset is not about avoiding error, but about separating durable theses from fragile structures.