With No Deal Yet, Pershing Square Tontine Is Running Too Hot

Ian Bezek

February 15, 2021 4 min read

Bill Ackman’s special purpose acquisition company (SPAC), Pershing Square Tontine (NYSE:PSTH), continues to move higher. In fact, PSTH stock popped as high as $33 per share last week. That was a nice bump over its previous trading range in the high $20s.

spac stocks two business people holding giant puzzle pieces, representing mergers and SPACs

PSTH stock has settled in around the $30 mark. That’s quite impressive. Keep in mind that Ackman debuted Pershing Square Tontine at about $20 per share.

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So, the stock is up 50% from its offering price even though we’re still missing a major detail — what the SPAC is actually going to buy.

That’s the thing that makes PSTH stock so strange at this point. It’s common to have SPACs shoot up after they announce a deal. But it’s much less common to see a SPAC take flight before investors even know what the SPAC actually represents.

As such, Pershing Square Tontine is a bet on Bill Ackman’s judgment at this point.

A Better Alternative to PSTH Stock

PSTH stock is not the only publicly traded Bill Ackman investment vehicle out there. You also have Pershing Square Holdings (OTCMKTS:PSHZF). This is a closed-end fund (CEF) that owns a stake in the Pershing Square hedge fund. Because of that, its share price closely follows Ackman’s investment returns.

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Aside from tracking errors, folks who buy the PSHZF stock essentially get the same returns as direct investors in Ackman’s hedge fund. Along with a particularly good 2020, Ackman has historically delivered strong returns. Yet, despite that, PSHZF is trading at a significant discount to the value of its stake in the hedge fund.

But there’s also a cherry on top: Ackman’s hedge fund has a substantial stake in Pershing Square Tontine, including warrants. So, if the Pershing Square Tontine deal is a big winner, a nice portion of that will accrue to the hedge fund.

Meanwhile, if the Tontine deal fizzles, the broader hedge fund will still be in fine shape. If you want to know more, I wrote a full comparative analysis of Tontine and Pershing Square Holdings back in January.

Finally, though, I should note that not all high-profile SPACs end up getting a big pop. For example, VG Acquisition (NYSE:VGAC) recently announced that it is buying well-known genetics play 23andMe.

VGAC stock initially popped from $14 to $18, but has now given most of that back as investors question 23andMe’s long-term prospects. Ackman, by searching for a large target, may find himself buying a similarly uncertain business.

What Might This SPAC Buy?

Pershing Square Tontine has been hunting for a deal for a while now. There were rumors last year that Ackman would take a run at AirBnb (NASDAQ:ABNB). Instead, AirBnb went public on its own via a traditional initial public offering (IPO).

Traders also speculated that Ackman would buy the Bloomberg information services and media empire. There’s been constant speculation that the Bloomberg business was for sale since Michael Bloomberg’s run for president last year. However, nothing came of that either.

As of now, there’s not any clear indication of what Pershing Square Tontine may acquire. However, traders are betting that Ackman will announce something soon.

For one thing, Ackman recently tweeted out a bizarre rap music video about SPACs called “Spac Dream” recently. That song highlights many trading themes and celebrities such as Dave Portnoy, buying the dip, and grabbing SPAC warrants.

Second, Ackman is set to have Pershing Square’s annual meeting on Feb. 18. As such, if Ackman has a deal lined up, it’d be logical to unveil it at the annual meeting. It’d be perfect from a media buzz standpoint.

The Verdict

If you like Bill Ackman, I get the appeal of this offering. It makes a lot of sense in this environment. We’re getting overwhelmed with all the new SPACs. So Ackman manages to stand out from the crowd with his celebrity status and the unusually large size of Pershing Square Tontine. It all adds up as to why this is a hot opportunity.

However, it’s a bit steep to pay a 50% premium for PSTH stock right here. Especially so when you can buy into the tracking stock for the Pershing Square hedge fund at a big discount.

Assuming you believe in Ackman, doesn’t it make more sense to buy into his hedge fund on the cheap? Particularly when said hedge fund is well-positioned to get a large chunk of the eventual profits from Pershing Square Tontine.

PSTH stock will continue to be a great trading name. Look for another pop when a deal is finally announced. Over the long-term, however, there’s likely better returns to be had in Ackman’s hedge fund rather than this one-off SPAC.

On the date of publication, Ian Bezek did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.