Breakingviews: Bill Ackman’s SPAC is a treat that is going moldy

Bill Ackman’s blank-check firm risks spending too long on the shelf. The hedge fund manager’s special-purpose acquisition vehicle Pershing Square Tontine Holdings is being sued by a shareholder over its now-abandoned plan to buy a stake in Universal Music Group. Regulatory ambiguity is to blame.

The lawsuit, which was filed on Tuesday, contends that Ackman’s SPAC has acted like an investment vehicle rather than an acquisition company and should therefore follow rules that require the former to register with U.S. regulators and make clearer disclosures on things like pay structure. Pershing Square’s plan to purchase a stake in Universal Music at a time when the company was already being taken public by parent company Vivendi rather than buying a whole company is one of several red flags, it says.

Ackman said the suit was without merit and that the SPAC was a natural extension of Pershing Square’s investment fund management business. But twists he added to some traditional aspects of a SPAC leave him more exposed to blowback, if not of the legal sort. Also, his high profile and the size of his blank-check company, which, at $4 billion, is the largest on record, make PSTH an obvious target. And Ackman’s day job is an investment adviser unlike, say, ex-Citigroup banker Michael Klein, who has worked in the mergers business for decades.

The root of the problem, however, is that ambiguous regulatory guidelines encourage financiers to test the limits of creativity at a time of huge interest in SPACs. Blank-check companies accounted for 14% of the $1.6 trillion of global mergers that were announced in the second quarter, Refinitiv data shows. When the U.S. Securities and Exchange Commission does refine the rules, plum pay packages for SPAC managers will probably be front and center, which may mean there’s less incentive to do deals.

Before then, the lawsuit against Ackman’s SPAC, which is a big drain on his time and reputationally risky, may deter others from adding cunning twists to the standard model. And all the while his blank-check firm is just getting moldy.

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