Hedge-fund billionaire William Ackman is being sued for allegedly not operating as a blank-check firm, following the record size SPAC merger which he used to take the company public.
As reported by the Wall Street Journal, in response to the shareholder lawsuit, Ackman is folding his cards, and has agreed to return $4 billion in shareholder funds invested. Last summer, his company, Pershing Square Tontine Holdings LTD, had launched the oversized special-purpose acquisition company, which has become a popular and less regulated way to go public versus a traditional IPO. The shell company was supposed to raise funds and then looks for a business to merge with and take public. In June, however, Pershing Square announced it would buy a 10% stake in Universal Music Group. Investors were astonished and had expected a traditional SPAC merger. The lawsuit, brought forth by former SEC commissioner Robert Jackson and Yale Law professor John Morley, alleges Ackman’s SPAC has been illegally acting as an investment company instead of an operating company.
In a letter to its shareholders posted on Pershing Square’s website, Ackman wrote, “While we believe the lawsuit is meritless, the nature of the suit and our legal system make it unlikely that it can be resolved in the short term”. He also blamed the lawsuit for keeping them from closing a deal to buy a stake in Universal Music. “Our ability to complete a transaction in the required time frame has been impaired by the lawsuit,” he said.
The lawyers who brought the lawsuit said, “We are gratified to see that just two days after we filed our lawsuit, the world’s largest SPAC is now offering to mail back over $4 billion worth of checks to investors”.
Though Pershing Square Tontine backed away from sealing a deal with Universal Music Group, and said it would return the $4 billion, Ackman said “all is not lost”. As per the Post, he noted that Pershing is “working on obtaining approval” from the Securities and Exchange Commission for an new novel type of blank check company — a SPARC or special purpose acquisition rights company, which only asks investors for cash if it finds a deal.
Ackman still has 11 months to find a target before he needs to return shareholder funds. Ackman said the vehicle could be approved “shortly” by the SEC. If the SPARC is approved, Ackman will return investors the $20 per share they spent and give them a warrant to buy into the SPARC when the deal closes.