Hedge-fund billionaire investor Bill Ackman withdrew his plan to acquire a stake in Universal Music Group via his SPAC, expressing doubts the SEC would approve the deal.
Ackman told shareholders in a letter on Monday that he did not think the SPAC "would be able to consummate the transaction" after the SEC had questioned the legality of the arrangement.
Having launched the largest SPAC ever last summer in hopes of acquiring a "mature unicorn," Ackman announced in June that it would be paying $4 billion for a 10% share of UMG, the world's largest record label by market share, whose roster includes Kanye West, Lady Gaga and Taylor Swift.
It was an unconventional twist on the SPAC, which has been subject to increasing regulatory scrutiny since becoming a hot Wall Street trend.
Shareholders in Pershing Square Tontine Holdings, Ackman's SPAC, would have gotten a slice of UMG along with rights to purchase shares of a future acquisition that Ackman's vehicle would make with its leftover cash. Ackman would have had a longer leash for making that next deal, ostensibly having fulfilled his SPAC's obligation to acquire a company within two years.
Instead, Tontine remains on the hunt. Unless its shareholders approve an extension, it has 18 months to find a new company.
"In light of our recent experience, our next business combination will be structured as a conventional SPAC merger," Ackman wrote.
The regulators followed in the footsteps of the many Tontine investors who didn't like the look of the deal. By Monday, Tontine's share price had fallen 18% since the UMG arrangement was announced.
"We underestimated the reaction that some of our shareholders would have to the transaction's complexity and structure," Ackman wrote.
Ackman added that Pershing Square, his hedge fund, still intends to take a long-term position in UMG, which is set to go public on the Amsterdam stock exchange later this year.
Hedge-fund billionaire investor Bill Ackman is getting a 10% share of one of the world's largest music companies, valued at $40 billion, and performing some Wall Street-styled gymnastics to do it.
Ackman launched the largest SPAC ever last summer with the goal of acquiring a "mature unicorn" to take public with his new blank-check company. Those plans have changed. Ackman's SPAC – Pershing Square Tontine Holdings Ltd. – will instead be acquiring a piece of Universal Music Group: a carveout from an already publicly-traded company, Vivendi, which itself was planning on going public.
By doing so, Ackman fulfills his SPAC's obligation to acquire a company within two years. But Tontine will live on, only as a new type of financial entity: a so-called SPARC.
UMG is expected to go public on the Amsterdam-based Euronext exchange later this year.
Tontine will pay about $4 billion for its 10% stake in UMG – the world's largest record label by market share, whose expansive roster includes Kanye West, Lady Gaga and Taylor Swift. UMG's sweeping catalog provides Ackman and his shareholders access to an asset that has steadily been attracting investors, who've paid big sums for music publishing rights as digital music soars.
The deal must still be approved by shareholders of UMG's parent company Vivendi. A vote is scheduled for Tuesday.
Meanwhile, the deal meets Ackman's acquisition obligation, and leaves him flush with about $2.9 billion in cash still available to the blank-check company. Tontine will continue searching for another acquisition target, according to a company statement.
Shareholders will get a slice of UMG along with rights to purchase shares of a future acquisition, under the arrangement that inspired the term SPARC, or special purpose acquisition rights corporation. Those rights, or warrants, are expected to be tradeable on the NYSE or Nasdaq, Tontine said.
The financial engineering puts a spin on the SPAC, one of the hottest Wall Street trends of late.
Tontine said it was attracted to UMG's 5% revenue growth in 2020, when streaming proved resilient during the pandemic. Music streaming comprises the majority of UMG's revenues.
Competitor Warner Music Group went public in 2020 at a market value of $15.6 billion. That provided a tidy sum to Len Blavatnik, who bought WMG for $3.3 billion in 2011.
Tontine's 10% stake in UMG is expected to settle within a few weeks.
Shares in Tontine closed flat Monday at $22.70. They fell sharply, however – about 13% – when news first surfaced earlier this month that it was exploring a 10% UMG acquisition.
"During the course of our negotiations with Vivendi, it became clear that various tax, legal and other strategic considerations precluded Vivendi from entering into a 'traditional' de-SPAC merger transaction, and from selling more than 10% of UMG," the Tontine announcement said. "Even with the additional complexity, time, legal, and other costs that these constraints created, we were convinced that the opportunity to acquire such an extraordinary business was the best option for our shareholders."
Tontine will hold a livestream presentation and Q&A about the deal on Wednesday.
After a string of funding problems that have delayed the release of its first car, Faraday Future announced Tuesday that production would start by July 2022 at an assembly plant in Central California.
Irvine-based architecture firm Ware Malcomb is set to finalize the building's design and engineering for an automobile plant in Hanford, California. Faraday says the 1.1-million square-foot building can produce 10,000 vehicles per year when it's up and running.
Faraday Future, which announced a $3.4 billion SPAC merger in January with Property Solutions Acquisition Corp (PSAC), said last March a $100 million debt financing would allow it to begin production on the FF91 electric vehicle in Hanford. Until now, it hasn't delivered on its production promises for the consistently delayed luxury EV.
"FF has already completed significant investment at our Hanford manufacturing facility, and with the additional funding from our merger with PSAC, we anticipate that the plant will be up and running in the near future," CEO Carsten Breitfeld said in the announcement.
Faraday Future's Facility in Hanford, California
The luxury FF91 SUV is set to compete with vehicles like the Tesla Model X. Faraday promised the FF91 would go from 0-60 mph in 2.4 seconds, while it featured a tech-heavy interior. Customers were asked to put down $5,000 for a refundable deposit for the car that most recently was supposed to begin production at the end of 2020.
The Gardena-based startup will also work with Tesla manufacturing partner Myoung Shin to make more vehicles in South Korea, including models other than its 1,050-horsepower debut electric car. Faraday said it secured a former General Motors plant there for additional production capacity, although it didn't specify on production capacity.
The company was founded in 2014 and showed a high-performance electric supercar at the 2016 Consumer Electronics Show in Las Vegas. But the following year, it unveiled the more mainstream FF91.
It leased the Hanford facility in 2017 after canceling plans to build a $1 billion plant near Las Vegas, even though construction had already started. But money problems had beset Faraday Future since 2016 and continued to delay the start of production for the FF91 and other models were dropped from its plans. The company furloughed hundreds of workers in 2018 and sold its Gardena headquarters in 2019 to raise cash.
Its co-founder and former CEO, Jia Yueting, was also caught in a financial scandal. His assets in China were frozen and he moved to California permanently, where he spent millions on homes and other purchases. Jia filed Chapter 11 bankruptcy in the United States in 2019.
The controversy with Jia also resulted in then-chief technology officer Ulrich Kranz and chief financial officer Stefan Krause to leave the company. Kranz and Krause later founded Torrance-based Canoo Inc. (Kranz recently left Canoo for Apple).
Faraday Future didn't elaborate on how many additional vehicles it hopes to produce in South Korea or how many additional markets it plans to enter, but the company said it's brought on key people to ramp-up assembly. In March, the company hired a former Jaguar Land Rover executive to establish operations in China.
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