Bill Ackman updates

Bill Ackman has proposed returning $4bn he raised from investors in his special purpose acquisition company if he secures regulatory approval to launch a new vehicle, saying a lawsuit filed earlier this week had impaired his ability to strike a deal.

In a note to Pershing Square Tontine Holdings shareholders late on Thursday, the billionaire investor said a lawsuit alleging the Spac is “an illegal investment company” has hurt its chances of getting a deal done within the required timeframe.

“While we have been working diligently to identify and close a transaction, and we have begun discussions with potential merger candidates, our ability to complete a transaction in the required timeframe has been impaired by the lawsuit,” Ackman wrote in the letter. He called the lawsuit “meritless” but said its “mere existence” may discourage potential targets.

Filed by former securities and exchange commissioner Robert Jackson and Yale Law School professor John Morley on behalf of a PSTH shareholder, the civil suit alleges that Ackman’s Spac should be registered as an investment company.

“An investment company is an entity whose primary business is investing in securities. And investing in securities is basically the only thing that PSTH has ever done,” the lawsuit states. If successful, the lawsuit could deal a blow to the broader Spac market, with some lawyers telling the Financial Times they expected it to further dampen enthusiasm for the vehicles.

Ackman, the founder of hedge fund Pershing Square, challenged the lawsuit’s intent, suggesting his Spac had been used as a scapegoat by academics and lawyers who have a broader agenda to reform the market. He said the civil claim was “materially misleading” with regard to how much compensation is awarded to the Spac’s sponsors.

Ackman’s new proposal is centred around a structure he created as part of his now ill-fated deal to buy a stake in Universal Music Group. PSTH shareholders would receive back the $20 per share they invested as well as warrants to buy equity in his special purpose acquisition rights company, or Sparc.

A Sparc, which is yet to be approved by regulators, does not require investors to put cash up until a target company has been identified and, importantly, does not operate within a two-year time limit like a traditional Spac.

Ackman did not elaborate on what will happen if the Sparc structure, which will require a rule change at the New York Stock Exchange, is not approved.

Timing has been an issue for PSTH, which spent months hashing out a deal to acquire a 10 per cent stake in Vivendi-owned UMG before calling it off following a backlash from the SEC. Ackman now has 11 months to find a target for PSTH and six months to close the transaction unless he can pivot to a Sparc.

The new proposal comes as shares in PSTH dipped below their initial public offering price for the first time since its launch. “If you find yourself in a leaky boat, often times you are better off switching boats than patching leaks to complete the mission,” he wrote on Twitter on Friday.

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