Are SPARCs the new SPACs? Bill Ackman might think so
- Bill Ackman's SPAC will acquire a 10% stake in Universal Music Group for approximately $4 billion.
- Ackman’s firm will also setup a new entity named Pershing Square SPARC Holdings, Ltd.
- SPARC stands for special purpose acquisition rights company and is different from the typical SPAC.
Hedge fund billionaire Bill Ackman setup up the $4 billion special purpose acquisition vehicle (SPAC), Pershing Square Tontine Holdings Ltd (NYSE: PSTH), in July 2020. But after almost a year without a deal, the SPAC announced last week that it will be acquiring a 10% stake in Universal Music Group, which is majority-owned by the French conglomerate, Vivendi S.E for approximately $4 billion.
How the deal for Universal is different from a typical SPAC?
The transaction to acquire Universal will not be your typical SPAC deal, in which the SPAC mergers with a private company to take it public. Universal will list on Euronext Amsterdam and PSTH will get a 10% stake in the public company.
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The SPAC had approximately $1.6 billion in additional funds from the exercise of its Forward Purchase Agreements with the Pershing Square Funds and affiliates. After the completion of the deal, the SPAC called PSTH Remainco will be left with $1.5 billion. The funds will be used to pursue other businesses.
Ackman’s firm will also setup a new entity named Pershing Square SPARC Holdings, Ltd.
So, what’s a SPARC?
SPARC stands for special purpose acquisition rights company. Unlike a traditional SPAC, which first raises capital from investors and then, seeks to invest in a private operating company to take it public within two years, a SPARC will identify the target company first and then, the investors can determine whether they want to invest.
The SPARC will have the advantage of less time pressure as it will not be subject to the two-year time limit to consummate a deal and minimal underwriting costs. SPARC intends to issue rights to acquire common stock in SPARC for $20.00 per share to PSTH shareholders.
Ackman’s SPARC will have a minimum of $6.6 billion of cash and up to approximately $10.6 billion to fund any future deal.