It’s happening. A few days ago, I called UMG my #3 most likely deal target for PSTH. When I wrote that article, a lot of the pieces for a UMG deal fit with what Ackman was saying in interviews, but the potential for a UMG / PSTH deal still left me kind of cold.
One big question not answered is: "At what point in the process do PSTH shareholders get the opportunity to redeem shares for $20 before they lose that right forever?" Is this before the UMG spin-off? If so, how will it be arranged as there will not be a vote prior to the UMG spin-off? In fact, there doesn't seem to be any part of the process that requires a vote. If anyone has an opinion to share it would be appreciated. Seems like a bait-and-switch to the original SPAC investors as many/all of the regular SPAC expectations are being broken.
"The Warrant Exchange Offer would close prior to the record date for PSTH’s distribution of UMG shares such that warrantholders who participate in the exchange offer and continue to hold their PSTH shares will receive UMG Shares in the Distribution."
So if you do the cashless redemption of existing outstanding warrants, you'll get PSTH shares in time to be entitled to both UMG and Remainco. PSTH is a year old and the 48 mo/$22 cell in the redemption table in the S1 is 0.2433. At $22/share, that makes a warrant worth $5.35.
Also
"One SPAR will be distributed for each share of PSTH Class A common stock outstanding on the record date shortly following the completion of the Redemption Tender Offer and Warrant Exchange Offer."
and
"PSTH will distribute Distributable Tontine Redeemable Warrants to remaining shareholders after completion of the Redemption Tender Offer and Warrant Exchange Offer. PSTH will make that distribution to shareholders of record after completion of the Redemption Tender Offer, but before completion of the Warrant Exchange Offer. This means that shares that are redeemed in the Redemption Tender Offer or that are issued in the Warrant Exchange Offer will not receive the Distributable Tontine Redeemable Warrants."
So ordering is:
1. Share Redemption Tender Offer ($20 refund)
2. Tontine Record Date
3. Outstanding Warrant Redemption
4. Distribution of Tontine Warrants
5. Distribution of UMG shares???
6. Distribution of SPARs???
I have ??? on #5 and #6 because it states clearly that they happen after #3 (I led off with the proof of that above), but I haven't found clarity on whether they happen after #4. If so, it is conceivable you'd get the tontine warrants in time to exercise them for shares and then get more UMG, more Remainco, and more SPARs.
If 5/6 really do happen after 4, then the tontine warrants could end up offering leverage into UMG/Remainco/SPARs. Like, if half the shares redeem, then remaining shares get 4/9 of a tontine warrant. 4/9 * 0.2433 = 0.1081 PSTH shares. So 1 share pre-redemption would be worth 1.1081 shares post, in time for UMG distribution. That means 1 share has about $22 of UMG/Remainco value in that scenario. At the current price, you get the 1.1081 SPARs for free. Of course, who knows if anyone will redeem their shares for $20 at this point.
Also, the SPARC structure sounds really elegant, if it works out. Bill gets unlimited time to hunt, nobody is buying options or complaining about opportunity cost, and PSH owns all the equity so has full voting control over an eventual deal.
"No assurance can be given that SPARC will be ultimately effectuated on the above outlined terms or at all."
Sounds like SEC and NYSE still need to bless the SPARC idea.
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I do wonder how PSTH options are going to be adjusted for this. I'm guessing they miss on all the fun and just get a strike adjustment on Remainco. I hope that's not true, because I definitely had some Jan 22 $20C in the mix that got cut in half today.
Since PSTH is largely a US shareholder base and WMG trades in the US, I would think the UMG shares received will establish an ADR here in the US. That makes the most sense to me. I think shareholders would hate dealing with their broker receiving intl shares.
How are they going to distribute the UMG stock? If it's a dividend, what are the tax consequences? BTW, the 2/9 warrants will be a dividend. Also how will ex-dividend work? This deal keeps getting stranger as you try to figure out how it will unfold.
Just to clarify, 10% UMG shares PSTH is getting are from 20% UMG shares which Vivendi is supposed to hold post IPO. 60% UMG shares distrubuted for Vivendi shareholders will stay the same.
That's what Reuter reported in May when vivendi said the group is analysing the soppotunity of selling 10% of UMG shares to an American investor".
And it makes sense what's written in the p26 — VIVENDI — NOTICE OF MEETING 2021 —
"Vivendi would retain 20% of UMG’s share capital and voting rights. However, Vivendi continues to receive expressions of interest from potential investors in UMG and may sell some of its UMG shares to a strategic partner either before or after the payment of the Distribution in Kind. Nevertheless, Vivendi intends to retain at least 10% of UMG’s share capital over the long term.
By the way, I've been following your blog since you listed UMG as No.3 target. Great articles.
9 bullet points you made are most accurate and yet simplest explanations of the deal I've ever read. Including the 28 pages report Bill Ackman tweeted "worth a read". Thank you for your work.
I'm interested to know whether it is safe to sell calls against shares. Because PSTH distributes UMG as a dividend (I believe) does this mean selling calls does not cap the upside on my UMG preIPO shares?
I wonder if the iv crush is temporary. I bought back my covered calls during the day expecting more volatility in the coming weeks.
One big question not answered is: "At what point in the process do PSTH shareholders get the opportunity to redeem shares for $20 before they lose that right forever?" Is this before the UMG spin-off? If so, how will it be arranged as there will not be a vote prior to the UMG spin-off? In fact, there doesn't seem to be any part of the process that requires a vote. If anyone has an opinion to share it would be appreciated. Seems like a bait-and-switch to the original SPAC investors as many/all of the regular SPAC expectations are being broken.
"The Warrant Exchange Offer would close prior to the record date for PSTH’s distribution of UMG shares such that warrantholders who participate in the exchange offer and continue to hold their PSTH shares will receive UMG Shares in the Distribution."
So if you do the cashless redemption of existing outstanding warrants, you'll get PSTH shares in time to be entitled to both UMG and Remainco. PSTH is a year old and the 48 mo/$22 cell in the redemption table in the S1 is 0.2433. At $22/share, that makes a warrant worth $5.35.
Also
"One SPAR will be distributed for each share of PSTH Class A common stock outstanding on the record date shortly following the completion of the Redemption Tender Offer and Warrant Exchange Offer."
and
"PSTH will distribute Distributable Tontine Redeemable Warrants to remaining shareholders after completion of the Redemption Tender Offer and Warrant Exchange Offer. PSTH will make that distribution to shareholders of record after completion of the Redemption Tender Offer, but before completion of the Warrant Exchange Offer. This means that shares that are redeemed in the Redemption Tender Offer or that are issued in the Warrant Exchange Offer will not receive the Distributable Tontine Redeemable Warrants."
So ordering is:
1. Share Redemption Tender Offer ($20 refund)
2. Tontine Record Date
3. Outstanding Warrant Redemption
4. Distribution of Tontine Warrants
5. Distribution of UMG shares???
6. Distribution of SPARs???
I have ??? on #5 and #6 because it states clearly that they happen after #3 (I led off with the proof of that above), but I haven't found clarity on whether they happen after #4. If so, it is conceivable you'd get the tontine warrants in time to exercise them for shares and then get more UMG, more Remainco, and more SPARs.
If 5/6 really do happen after 4, then the tontine warrants could end up offering leverage into UMG/Remainco/SPARs. Like, if half the shares redeem, then remaining shares get 4/9 of a tontine warrant. 4/9 * 0.2433 = 0.1081 PSTH shares. So 1 share pre-redemption would be worth 1.1081 shares post, in time for UMG distribution. That means 1 share has about $22 of UMG/Remainco value in that scenario. At the current price, you get the 1.1081 SPARs for free. Of course, who knows if anyone will redeem their shares for $20 at this point.
Also, the SPARC structure sounds really elegant, if it works out. Bill gets unlimited time to hunt, nobody is buying options or complaining about opportunity cost, and PSH owns all the equity so has full voting control over an eventual deal.
"No assurance can be given that SPARC will be ultimately effectuated on the above outlined terms or at all."
Sounds like SEC and NYSE still need to bless the SPARC idea.
---
I do wonder how PSTH options are going to be adjusted for this. I'm guessing they miss on all the fun and just get a strike adjustment on Remainco. I hope that's not true, because I definitely had some Jan 22 $20C in the mix that got cut in half today.
Since PSTH is largely a US shareholder base and WMG trades in the US, I would think the UMG shares received will establish an ADR here in the US. That makes the most sense to me. I think shareholders would hate dealing with their broker receiving intl shares.
with the cash shell, maybe he will start buying up the listed PSH LN shares that trade at a c. 30% discount..
How are they going to distribute the UMG stock? If it's a dividend, what are the tax consequences? BTW, the 2/9 warrants will be a dividend. Also how will ex-dividend work? This deal keeps getting stranger as you try to figure out how it will unfold.
Just to clarify, 10% UMG shares PSTH is getting are from 20% UMG shares which Vivendi is supposed to hold post IPO. 60% UMG shares distrubuted for Vivendi shareholders will stay the same.
That's what Reuter reported in May when vivendi said the group is analysing the soppotunity of selling 10% of UMG shares to an American investor".
And it makes sense what's written in the p26 — VIVENDI — NOTICE OF MEETING 2021 —
"Vivendi would retain 20% of UMG’s share capital and voting rights. However, Vivendi continues to receive expressions of interest from potential investors in UMG and may sell some of its UMG shares to a strategic partner either before or after the payment of the Distribution in Kind. Nevertheless, Vivendi intends to retain at least 10% of UMG’s share capital over the long term.
By the way, I've been following your blog since you listed UMG as No.3 target. Great articles.
9 bullet points you made are most accurate and yet simplest explanations of the deal I've ever read. Including the 28 pages report Bill Ackman tweeted "worth a read". Thank you for your work.
I'm interested to know whether it is safe to sell calls against shares. Because PSTH distributes UMG as a dividend (I believe) does this mean selling calls does not cap the upside on my UMG preIPO shares?
I wonder if the iv crush is temporary. I bought back my covered calls during the day expecting more volatility in the coming weeks.
I wonder how they will navigate the call options. Complex indeed.