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Bill Ackman’s Deal Machine Must Try Again

When Bill Ackman’s jumbo-sized SPAC, Pershing Square Tontine Holdings, struck a deal last month to buy a 10 percent stake in Universal Music Group, it did so with a highly complex transaction that took a lot of explaining. Now, pushback from the S.E.C. has forced Ackman to change course.

A quick reminder of how the original deal was supposed to work:

  • It would have cost $4 billion for the Pershing Square SPAC to purchase a 10 percent stake in Universal Music, which is home to artists such as Taylor Swift and Ariana Grande and was already being floated on the stock market by its parent company, Vivendi.

    Rather than being rolled over into a new publicly traded acquisition fund, the $1.5 billion remaining in the SPAC’s balance sheet would have been used to pursue another acquisition.

    Existing SPAC investors would have received a financial instrument that would have granted them the right to invest in yet another deal vehicle that would seek its own takeover target, rather than a financial instrument.

The S.E.C. had concerns, namely whether it qualified as a SPAC deal at all. In a letter to investors today, Ackman said his team had failed to change the agency’s mind over multiple meetings. Furthermore, investors in the SPAC were wary, as evidenced by the fact that Pershing Square Tontine’s stock had dropped by nearly a fifth in value since the announcement of the transaction. Despite the transaction’s complexity and structure, Ackman admitted that he and his team had underestimated the reaction from some of his shareholders.

Now it’s back to the drawing board. Instead, Ackman’s hedge fund will purchase the Universal Music stake on its own behalf. According to Ackman, Pershing Square Tontine now has 18 months to find and close a new deal, unless shareholders grant the company additional time. “Our next business combination will be structured as a conventional SPAC merger,” he added.

Will investors express relief or scepticism about the SPAC’s next move now that they have wrapped their heads around the Universal Music deal? It will be interesting to see how Pershing Square Tontine’s shares perform after the company’s pivot. The stock is roughly back to its initial public offering price.

This is the latest sign of regulators reining in the SPAC market, making clear that they’re worried about protecting investors in those funds, which have boomed over the past year. Federal prosecutors and the S.E.C. are investigating Lordstown Motors, the electric truck maker that went public via SPAC and issued confusing information about its orders. The S.E.C. has charged the space travel company Momentus and its SPAC partner with misleading investors.

  • For all its complexity, Ackman’s SPAC was pitched as particularly friendly for investors, without the typical compensation for sponsors that has attracted criticism and regulatory scrutiny. Its deal with Universal Music also didn’t come with the overly rosy financial projections that mark many SPAC deals. In going after Ackman’s multilayered transaction, regulators appear to signal that they want SPACs to stick with a plain-vanilla approach.

England’s first day without pandemic restrictions is off to a rocky start. Hailed by tabloids as “Freedom Day,” today’s lifting of most virus-related limits has been marked by surging cases and staff shortages because of people self-isolating after being pinged by a government test-and-trace app. (Prime Minister Boris Johnson is among those in a 10-day quarantine.)

OPEC and Russia clinched a deal to increase oil production. The countries will pump more oil next month, increasing worldwide supplies by 2 percent. But supplies are likely to remain tight until at least the fall, analysts said.

Robinhood aims for a $35 billion valuation in its I.P.O. The online trading app revealed an expected price range for its market debut, kicking off a roadshow to prospective investors. That puts the company on track to begin trading next week.

An Israeli spyware maker is linked to hacking of activists, reporters and executives. An investigation unearthed 50,000 phone numbers associated with people of interest to clients of NSO Group, and attempts were made to break into dozens of smartphones from the list. NSO, which has been criticized for ties to authoritarian governments, denied wrongdoing.

Zoom makes a $15 billion bet on … phone calls. The videoconferencing company will buy Five9, a call-center operator, in its biggest acquisition to date. Zoom is looking beyond its core market as rivals muscle in on its turf.

In other news from the SPAC world, the luxury menswear brand Ermenegildo Zegna plans to end over a century of complete family control this morning by going public via a SPAC. It, like other high fashion companies, is bulking up as it bets that well-heeled customers will keep spending.

The company wanted capital to expand. Zegna will list on the New York Stock Exchange following a merger with a blank-check fund managed by the European investment firm Investindustrial. As a result of the merger, Zegna will receive $880 million in new cash and access to the capital markets to raise additional funds. When speaking with journalists this morning, the company’s chief executive officer, who also happens to be the grandson of its founder, made it clear that the company intends to merge and acquire other businesses. “We intend to merge and acquire other businesses,” Zegna said.

  • The background: In January, the SPAC’s chairman, Sergio Ermotti, a former UBS chief executive, approached the Zegna family with an offer to invest in the company. Gildo Zegna explained that the company had previously been content to remain private: “There was no competition between a SPAC and an I.P.O.,” he explained.

Other luxury houses have been doing deals, too. LVMH bought Tiffany & Company earlier this year, while L Catterton, an investment fund backed by LVMH, is reportedly in talks to buy the label Etro. And both Capri Holdings (the former Michael Kors) and Tapestry (the onetime Coach) have struck acquisitions in recent years.


— Dara Khosrowshahi, the C.E.O. of Uber, in an interview with Times Opinion columnist Maureen Dowd.


▶︎ Another billionaire goes to space. On Tuesday, Jeff Bezos is expected to become the second billionaire rocket company founder to go to space this month. (Richard Branson beat him by nine days.) The billionaires’ trips are a small step toward a new frontier for tourism — and liability insurance.

▶︎ Earnings reports from United, Southwest and American Airlines will serve as a progress report for postpandemic travel. Delta Air Lines, which last week reported its first profit since the start of the pandemic, said domestic leisure travel had fully recovered. But there’s still a big question over whether business travel will ever be the same.

▶︎ The spectator-less Olympics start on Friday. Over the weekend, organizers reported the first cases inside the athletes’ village. Toyota, a major sponsor, said today that it would cancel its Olympic-related TV ads in Japan, as public opinion turns against the event. Hosting the Olympics rarely pays off for cities in the best of times, but it is shaping up to be particularly costly for Tokyo.


President Biden on Friday told reporters that social media platforms are “killing people” by allowing vaccine disinformation to proliferate. The highly contagious Delta variant has fueled an uptick in cases, especially in places with low vaccination rates. Frustration with Facebook has grown after recent meetings between White House officials and company executives.

Facebook said it is a scapegoat for Biden’s missed vaccination goals. Guy Rosen, a Facebook vice president, wrote a lengthy blog post over the weekend entitled “Moving Past the Finger Pointing.” Among other things, he said that 85 percent of users in the U.S. “have or want to be” vaccinated, though some questioned the company’s numbers.

It’s complicated. Similarly, as Kara Swisher pointed out in a Times Opinion column, Facebook serves as a portal to both helpful and harmful information, “presenting clearly solid information about Covid while also serving as a place where an enormous flood of lies about it has overwhelmed the same zone.” Rather than changing minds, are the posts and videos that Facebook users see reinforcing their existing beliefs? We don’t know based on the information that has been released so far, and the balance between celebration and scorn is dependent on it.


Masa Son, the head of SoftBank, once sent Adam Neumann, the founder and head of WeWork at the time, a picture of Yoda on which he had scribbled, “Chicken First!!” That odd piece of encouragement is just one of the eye-catching details in an excerpt from the new book, “The Cult of We: WeWork, Adam Neumann, and the Great Startup Delusion.”

Some of the other juicy anecdotes from the book — here is The Times’s review — written by The Wall Street Journal reporters Eliot Brown and Maureen Farrell:

  • Neumann estimated that he would require $70 billion in funding to achieve his growth objectives, which was several times more than any previous start-up had raised.

    Neumann told aides that he wanted WeWork to acquire the ride-hailing company Lyft, and that the company was in talks to acquire the restaurant chain Sweetgreen, among other things.

    Neumann wanted his company’s contract to state that he would be able to retain control of the company even if he were sentenced to prison for a felony. He was successful.

The cryptic message from Son was a reference to the age-old chicken-and-egg conundrum. Unmet demand is frequently the catalyst for the birth of a new business concept. In the meantime, Son advised Neumann to demonstrate to customers the appearance of a fully grown chicken first, and demand would naturally follow. Neuman was expanding the company’s offerings to include things like yacht charters (WeSail) and preschools at the time (WeGrow).

As a result, there was a zoo. Son withdrew from a crucial financing agreement. Neumann was fired from his position. Then the pandemic struck, and the value of WeWork plummeted. One of the lessons learned is that defying the rules of business is not always a surefire way to achieve financial success.

Deals

  • Johnson & Johnson is said to be weighing whether to use bankruptcy laws to shield itself from lawsuits over talc products. (Reuters)

  • China reportedly plans to exempt companies going public in Hong Kong from the cybersecurity reviews that tripped up Didi Chuxing. (Bloomberg)

  • Is this medical lawsuit company, which is going public via a SPAC, really worth $33 billion? (FT)

Policy

  • The White House is expected to formally accuse the Chinese government of hacking Microsoft email systems used by thousands of institutions. (NYT)

  • Treasury Secretary Janet Yellen will meet with other regulators today to discuss the benefits and risks of stablecoins. (WSJ)

  • “What China Expects From Businesses: Total Surrender” (NYT)

  • The failure of a Chinese semiconductor company shows the limits of Beijing’s support for would-be national tech champions. (NYT)

Best of the rest

  • “What Ever Happened to IBM’s Watson?” (NYT)

  • Two Americans convicted of helping smuggle Carlos Ghosn out of Japan were each sentenced to over a year in prison. (NYT)

  • Britain’s biggest divorce case has ended with a $186 million settlement. (Bloomberg)

  • This is the fictional storey of a babysitter who works for an extremely wealthy family that appears to be a close match to the real-life billionaire clan in Curtis Sittenfeld’s latest short storey. (The Atlantic)

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