Bill Ackman's Pershing Square Tontine, the largest-ever SPAC IPO, plans to liquidate its $4 billion trust and form a novel acquisition vehicle

Pershing Square Tontine Holdings, a publicly-traded blank check company formed by Bill Ackman of Pershing Square Capital, has announced that it will liquidate its trust and wind down operations. The New York, NY-based company is listed on the NYSE under the symbol PSTH.

If PSTH's $4 billion IPO epitomized the SPAC boom of 2020-2021, its liquidation epitomizes the collapse of the SPAC IPO market in 2022.

Pershing Square Tontine was unable to complete a business combination within 24 months of its IPO, and as required by its charter, it now plans to delist after the market close on July 25, cease operations, and return the pro rata share of its trust to shareholders, which it expects to be about $20.05. PSTH closed Monday at $20.00 per share.

The company went public in July 2020, just as the floodgates began to open for SPAC IPOs. It raised $4.0 billion, the largest ever for a SPAC, by offering 200 million units at a price of $20 per unit; the sponsor put in $65 million of at-risk capital. The units closed at $21.30 on their first day for a gain of 6.5%, unusually strong trading for a SPAC. Its shares eventually peaked at $32.95 during the height of SPAC mania in February 2021, a 65% premium to the offer price and the cash held in its trust.

Pershing Square Tontine had planned to target "Mature Unicorns," PE portfolio companies, and large family-owned businesses, stating that its structure would enable them to avoid the "inherent costs and risks associated with the traditional IPO process."

In a letter to shareholders on Monday, CEO Bill Ackman described how PSTH was formed at a time when they believed the COVID-19 pandemic would continue to disrupt capital markets, however their rapid recovery in 2020 made traditional IPOs a competitive route to going public. Airbnb (ABNB) had reportedly fielded a merger offer from PSTH before opting for a traditional IPO in December 2020. In mid-2021, PSTH agreed to buy a stake in Universal Music Group after its European listing, however the SEC rejected the unconventional deal.

Ackman provides three reasons explaining why the SPAC has been unsuccessful in finding a merger target that met its criteria over the past year, which agrees with Renaissance Capital's analysis found in our recent 1Q and 2Q quarterly reviews:

(1) the extremely poor performance of SPACs that have completed deals during the last two years which has damaged market perceptions of going public by merging with a SPAC, (2) the high redemption rates of SPACs which has reduced the capital available for the newly merged company, increased the dilution from the shareholder warrants that remain outstanding, and heightened transaction uncertainty, and (3) risk and uncertainty created by the Investment Company Act litigation brought against PSTH, particularly when coupled with new SPAC rules proposed by the SEC on March 30, 2022.

Despite PSTH's liquidation, Ackman and Pershing Square have not given up on finding a company to take public. In his letter, he says that with the SPAC and IPO market effectively shut, "now is a highly opportunistic investment environment for a public acquisition vehicle which does not suffer from the negative reputation of SPACs."

To that end, Ackman has launched a "special purpose acquisition rights company," or SPARC, called Pershing Square SPARC Holdings, which has filed a registration statement with the SEC. The acquisition vehicle will issue subscription warrants ("SPARs") to PSTH shareholders (1/2 SPAR per PSTH share) and warrant holders (1 SPAR per PSTH warrant), with SPARs set to trade on the OTC marketplace. Pershing Square has committed a minimum of $500 million if the vehicle finds a merger target, and each SPAR will allow the holder to purchase two shares of the ultimate target company at the proposed transaction price.