Bill Ackman’s Pershing Square SPARC Holdings, Ltd. filed an amended S-1 that, among many changes, alters the total number of SPARC warrants to be issued from 244,444,444 to purchase a share at a minimum exercise price of $10 to 122,222,222 SPARC warrants to purchase two shares at $10. The amendment would result in the issuance of the same amount of stock if all the warrants are exercised, but with fewer warrants issued upfront.
Additionally, the sponsors plan to invest $30 million in the vehicle, which the filing notes is an incentive for management to get a deal done.
SPARCs are like SPACs but without a pool of money. Instead, a SPARC investor has a right to buy a share at such time as the SPARC signs a merger partner. Unlike SPACs, a SPARC has no deadline to do a deal.
Ackman’s initial attempt to spin off a SPARC hit an iceburg last year with the collapse of his SPAC’s deal to buy a 10% stake in Universal Music Group from Vivendi for an aggregate purchase price of nearly $4 billion. His SPAC was then sued by a former SEC commissioner who claimed Pershing Square Tontine Holdings was acting as an investment company. In short order, more than 55 U.S. law firms rose to Ackman’s defense, pushing back against the lawsuit.
Another key difference with Ackman’s SPARC is the sponsors do not receive the customary 20% promote upfront, but will instead get 4.95% of any post-combination company once a deal is done.
As the filing notes, with a SPARC, funding available to a target is not dependent on shareholder redemptions, but on how many investors buy-in at exercise when a deal is announced.
If Ackman is successful, the SPARC will take a target public without the cumbersome traditional IPO process, while effectively dodging any concerns about redemptions, which continue to plague SPAC deals today. Read more.
