1. Pershing Square Tontine Holdings, Ltd. (NYSE:PSTH)
Mangrove Partners’ Stake Value: $53,759,000
Percentage of Mangrove Partners’ 13F Portfolio: 5.53%
Number of Hedge Fund Investors: 36
Mangrove Partners’ highest stake is in Pershing Square Tontine Holdings, Ltd. (NYSE:PSTH). The Delaware-based company is listed as a special purpose acquisition company (SPAC) backed by famous activist investor and hedge fund manager, Bill Ackman.
Pershing Square Tontine Holdings, Ltd. (NYSE:PSTH) is a creative SPAC, in the sense that stockholders who do not opt to redeem their investment as part of the SPAC transaction will receive extra warrants and down the line, they will receive more warrants from anyone else who redeems his warrant.
The SPAC went forward with the listing of the Universal Music Group (UMG) but the deal collapsed due to regulatory challenges. Following this, a lawsuit was brought up in August 2021 against Pershing Square Tontine Holdings, Ltd. (NYSE:PSTH) for acting as an investment firm. The lawsuit was an attack on all the companies in the SPAC universe and is not only limited to Pershing Square Tontine Holdings, Ltd. (NYSE:PSTH).
In response, Bill Ackman sent out a letter to the shareholders of Pershing Square Tontine Holdings, Ltd. (NYSE:PSTH) stating that he will give back $20 per share to the shareholders of PSTH. Furthermore, a warrant will also be given out, which can be exercised when the SPAC is making an acquisition.
Alphyn Capital Management mentioned Pershing Square Tontine Holdings, Ltd. (NYSE:PSTH) in its Q3 2021 investment letter. Here’s what the firm said:
“PSTH is a high-profile SPAC created by noted hedge fund investor Bill Ackman. I initiated a position soon after the company announced a deal, since abandoned, to buy a 10% stake in Universal Music Group ahead of its spinout from parent holding company Bollore. PSTH had been widely expected to pursue a marquee deal with some trophy tech company, such as Bloomberg L.P. or Stripe, the payments company, valued at $95bn in April, and the shares traded at a 60% premium during the SPAC frenzy of the early part of the year. Instead, PSTH announced a complex, multi-part transaction for an old-school music business, and we were able to purchase shares at a small premium to NAV. PSTH intended to buy 10% of UMG for $4bn and spin this into a separately traded company listed in Europe, creating a tracking stock that presumably would have merged into UMG at some future point. PSTH “remainco” would still have access to approximately $3bn to pursue another deal. Finally, PSTH shareholders would be given 5-year warrants to a new company called a “SPARC,” which would seek a 3rd acquisition target.
I believed PSTH’s components were worth more than the approximately $21.80 a share that PSTH traded for at the time. More importantly, UMG is an attractive asset with a 31% share of the global music market, the largest operator in a 3-way oligopoly with Sony Music and Warner Music. Streaming has transformed music into a growth industry, as companies like Apple, Amazon, Spotify, and TikTok have invested significant sums in building global music distribution platforms. UMG earns attractive high-margin royalties, and its extensive, irreplaceable back catalog of some of the most popular songs globally, valued as much as $50bn, positions it well within this ecosystem.
Unfortunately, the SEC did not approve the deal, and a subsequent shareholder lawsuit has further complicated matters. The net result is that PSTH abandoned the UMG deal and now wants to return cash to shareholders at $20/share and still issue SPARC warrants. Thus, assuming PSTH gets approval for its latest plan, we would receive most of our investment back and retain a 5-year option on a future deal, which is not a bad consolation prize.”
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