Bill Ackman wants to dissolve SPAC and return $4 billion to investors

Bill Ackman during an interview with Bloomberg Television on November 1, 2017. Billionaire investor William Ackman, who raised $4 billion in the largest special purpose vehicle (SPAC) ever, told investors he would return the sum after he had not found a suitable target to take the company public through a merger.

Christopher Goodney | Bloomberg | Getty Images

Billionaire investor William Ackman, who raised $4 billion in the largest special purpose vehicle (SPAC) of all time, told investors he would return the sum after failing to find a suitable target company to take public through a merger could become.

The development is a major setback for the prominent hedge fund manager, who originally planned for the SPAC to take a stake in Universal Music Group last year, when these investment vehicles were all the rage on Wall Street.

In a letter sent to shareholders on Monday, Ackman highlighted numerous factors, including unfavorable market conditions and stiff competition from traditional initial public offerings (IPOs), that have thwarted his efforts to find a suitable company to merge his SPAC.

“Companies with high quality and profitable, sustained growth are generally able to defer their timing to go public until market conditions are more favorable, which has narrowed the universe of high quality potential deals for PSTH, particularly over the past 12 months,” Ackman said, referring to the Ticker symbol for his SPAC.

In July 2020, Pershing Square Tontine raised $4 billion in its IPO, attracting prominent investors including hedge fund Baupost Group, Canadian pension fund Ontario Teachers and mutual fund company T. Rowe Price Group.

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SPACs, also known as blank check companies, are publicly traded wrappers of cash created by large investors — known as sponsors — for the sole purpose of merging with a private company. The procedure, which is similar to a reverse merger, takes the target company public.

SPACs peaked in 2020 and early 2021, helping to generate hundreds of millions of dollars worth of paper profits for a number of prominent SPAC creators such as Michael Klein and Chamath Palihapitiya.

Over the past year, however, companies that merged with SPACs have performed poorly, forcing investors to shun blank check deals. This, coupled with tightening regulatory scrutiny and a downturn in stock markets, has brought the SPAC economy to a virtual standstill, with billions of dollars at stake.

Additionally, the record-breaking performance of regular IPOs in the United States in 2021 posed competitive challenges for SPAC sponsors like Ackman, as several esteemed startups chose to list their shares through traditional exchange channels instead.

“The rapid recovery in capital markets and our economy has been good for America, but unfortunate for PSTH as it has made the conventional IPO market a formidable competitor and a preferred alternative for high quality companies looking to go public,” Ackman said.

In July of last year, Ackman’s efforts to acquire, through his SPAC, a 10 percent stake in Universal Music, which was spun off from French media conglomerate Vivendi, fell through regulatory hurdles. The US Securities and Exchange Commission objected to the deal, and Ackman instead invested in his hedge fund.

“While there were transactions over the past year that were potentially criminal for PSTH, none of them met our investment criteria,” Ackman said.