Pershing Square Tontine (PSTH) remains a huge area of focus for me. The reason is pretty simple: the “company” is completely unique in the stock market. It is, by far, the largest SPAC ever raised, which creates interesting dynamics when pursuing targets (they can pursue huge targets and guarantee deal completion in a way no other SPAC can). And PSTH is unique among SPACs both because of its tontine structure (as far as I know, SVAC is the only other SPAC with a tontine structure) and because of its incentive structure (which is dramatically better than other SPACs; combined with Pershing’s $1-3B forward investment commitment, PSTH may be the only SPAC where the management team can only make money if minority shareholders do).
Anyway, that combo of uniqueness and incentivized management is catnip for me, and I continue to believe PSTH’s options in particular are significantly mispriced (not investing advice; please remember that options are extremely risky!). I mentioned this in my “May links” post, but based on Ackman’s recent interviews, I think it’s reasonably likely PSTH announces a deal in the next few weeks (I’d say around an 80% chance). If you listen to his recent statements, he makes clear a few things on whatever potential deal he is going to announce:
He’s been working on the deal since November, and the hold up with the deal has been some structural issue on the seller’s side.
The company he’s looking at is “iconic”, and he’s fully confident they’ll be worth multiples of the current valuation in a decade.
The most interesting of those constraints is the first one: a structural issue on the seller’s side. That suggest one of two things: PSTH is in negotiations for some type of complex corporate carve out, or the seller has some interesting tax issues related to the sale that need to be overcome (or some combination of the two!). That constraint likely eliminates a lot of the potential deals that people have been thinking about. For example, Subway, Starlink, and Stripe have all at one time been popular potential targets, but I can’t see any structural issues that would cause a six month hiccup in announcing a deal. Similarly, I’m not sure if any of them would fit the definition of iconic; I tend to think of iconic as a decades old brand that people have a lot of history with and a lot of warm feelings towards. Those three don’t quite hit that level, though I suppose you could argue all three of them fit the definition if you took it literally (Starlink revived U.S. space dominance, Stripe is revolutionizing payments, and I believe, by per unit count, Subway is technically the largest restaurant chain in the world. I tend to think of Starlink and Stripe as more “revolutionary” than iconic, and Subway…. well, it makes money, but I don’t think anyone has super warm associations with the chain!).
So, using those criteria, I think we can somewhat narrow down the targets that PSTH could be talking to. We could further narrow the list down if we assume that Ackman wants to invest in a field that he’s had historical success in / is currently focused on. Ackman’s most successful investments have generally been in the consumer / retail / food space or in real estate, and those two sectors are where most of his investments are focused currently (I believe Agilent and Fannie/Freddie are the only two investments he currently has that do not hit those themes). So while he certainly could invest in any company in any industry, I tend to think whatever he does will have some ties to those sectors.
Ok, that said, here are my list of ten companies (or general target sectors) that I think would make sense / fit the criteria Ackman has given. I’ve listed them in order of most to least likely based on my own subjective ranking. Again, this is a little bit of a fishing expedition, but I’ve spent so much time thinking about PSTH I wanted to put some thoughts on paper (and obviously I will be spiking the football very, very hard if any of these are correct).
Mark Anthony Brands
Universal Music Group
Hearst / Fitch
An NYC real estate empire
A “big 3” consulting firm
HEB / Wawa / Trader Joe’s
I will note one final thing: I tend to think that a corporate carve out is more likely than a whole company deal given the structural issues he is talking about; however, the corporate world is so wide and a corporate carve out can be so broad that it’s tough to identify a specific target. So this list almost certainly leans too heavily in the “whole private company” direction. Still, I think all of these deals would make significant sense.
Let’s turn now to talking about why each company is on that list and why it would or would not make sense as a target (I’ve got a lot of details below; if you’re just looking for the cliffnotes you can check out my twitter thread here).
Company #1: Mark Anthony Bramds
Why a Mark Anthony deal makes sense: You’ve probably never heard of them, but I guarantee you’ve heard of their products. Mark Anthony Brands is the company behind White Claw and Mike’s Hard Lemonade; I think White Claw would certainly qualify as iconic at this point!. I have been saying for quite some time that Mark Anthony would be the perfect SPAC target, and I think a lot of the pieces fit. Their founder said they did ~$4B in revenue in 2020. Sam Adams (which own Truly) trades for ~5x revenue, so at a similar valuation Mark Anthony would trade for ~$20B, a perfect sweet spot for PSTH. Their founder is also over 70, so a deal with PSTH could make sense as he looks to transition the business to the next generation / estate plan. Mark Anthony would also make sense on the deal hiccup side: they are a Canadian company involved in alcohol, which comes with lots of regulations and licenses that must be approved in a transfer. Combine that with some estate planning, and you could see multiple issues that would need to be solved before a deal could be announced..
Why it wouldn’t make sense: While the Canadian company, license transfer, and estate planning issues are tricky, it doesn’t seem like they are “six months worth of delays” tricky. And Ackman is something of a health nut, having chided Warren Buffett for his Coke stake and leaving his entire investment team wondering if they could invest in Mondelez given his hardline on sugar (an issue that was put to bed when Ackman ate two Oreos in an investment committee). I also don’t believe Ackman has ever invested in anything in alcohol before. Still, I think this deal makes sense, and Ackman did end up investing in both Mondelez / Oreos and, more recently, Domino’s, so he’s willing to put his health concerns aside to make money! Overall, Mark Anthony seems to be the best fit to me: great management team, iconic brand, pretty clear path to being worth more in the future, and a reason that a SPAC deal would make sense (estate planning / eventual transfer of management).
Company #2: Mars
Why a Mars deal makes sense: Pretty obvious. Massive, iconic company in the consumer space. Plus, Ackman’s invested in the sector before through Mondelez.
Why it wouldn’t make sense: Ackman’s investment in Mondelez wasn’t exactly “a barn burner". I detailed Ackman’s issues with sugar in the Mark Anthony section above, so I won’t rehash them but they certainly apply here! And while I’m sure the company has lots of tax issues in a sale given how old it is and how low the cost basis must be, I’m not exactly sure why the tax issues would be so thorny that they would take this long to work out. Finally, Mars is a mega-company; they bought Wrigley for $23B in 2008. I’d guess they’re worth around $100B at this point. Even with PSTH’s huge size, I’m not sure they could spring a Mars deal. And, even if they could, what reason would Mars have for selling a stake? They mint more money than they know what to do with, and they’ve got an in with Buffett. If they needed capital for a deal, they could almost certainly self-finance or get some cash from Buffett. And if they wanted to sell the company, wouldn’t Buffett be their first call?
Also, in the WSJ interview Ackman was asked point blank if the company was Mars and I thought he took it pretty well; if it turns out it was Mars, Ackman has one heck of a poker face!
Company #3: Universal Music Group (UMG)-
Why a UMG deal makes sense: My friend Steven Wood at Greenwood mentioned UMG as a target over the weekend, and the puzzle pieces certainly fit. This press release noted that Vivendi is exploring selling 10% of UMG to an American investor before they spin it off. Vivendi sold a UMG stake to Tencent late last year that valued UMG at ~$37B; a 10% stake would be ~$4b, which is roughly in line with PSTH’s trust value. So that pieces certainly fit….
Why it wouldn’t make sense: Maybe I’m just portraying my on feelings on UMG into a potential deal (I’m pretty negative longer term; I think the labels are in a tough spot as artists can increasingly build followings themselves and Spotify playlists are the key to breakout hits, and labels will eventually be cut out), but UMG just doesn’t seem like the type of business Ackman does. I’ve never seen him invest in a music-type business (though, admittedly, there aren’t a lot of them!), and his WSJ interview mentioned him wanted to buy an iconic business. I’m not sure if UMG qualifies as that; yeah, it’s a big music label, but I wouldn’t call labels “iconic”. I think the numbers also don’t quite work; yes, PSTH has $4B in trust, but Ackman / Pershing will also write a $1B check (minimum) alongside any deal. That would boost whatever deal they do to a $5B of cash-in, so they’d have to pay a significant premium to UMG’s December Tencent round for PSTH to buy a 10% stake. And, most importantly, I don’t think the dynamics fit. Ackman said the deal talks have been ongoing since November, but some complexities on the seller’s end have been dragging them out. What would the complexity with UMG be? Vivendi has sold stakes in UMG several times, so they can easily carve out pieces of the company. And Vivendi has already been prepping UMG to go public, so the accounting should be up to public company speed. It also seems like Vivendi wants to spin out that whole of UMG; I think it would be a little strange for PSTH to buy 10% of the company right in front of Vivendi spinning out the other ~60% of UMG. Overall, I see the logic, but the pieces just don’t quite fit to me. (One last note: Vivendi’s stub is very cheap net of the implied valuation of UMG; I don’t believe I’ve ever seen Ackman or Pershing talk about Vivendi in any form. If he liked the business so much, wouldn’t he have been involved in Vivendi at some point in the past five years? It’s not like the UMG thesis was unknown!).
Company #4: Porsche-
Why a Porsche deal makes sense: H/t to sheep of Wall Street, who tweeted it out this morning. It would hit a lot of the criteria Ackman laid out: Porsche is certainly an iconic brand, the families are looking to get Porsche out of VW, and the ownership structure is convoluted enough that it could create a multi-month search for some solutions.
Why it wouldn’t make sense: I can’t remember Ackman ever investing in high dollar luxury items, which Porsche would certainly qualify as. I can also find lots of quotes from Ackman talking about Tesla’s cars “are the future” and praising Elon Musk; would buying Porsche fit into that world view? I don’t know! My comp for Porsche is Ferrari, which is probably 75% luxury brand / 25% car company; I haven’t really studied Porsche, but I’d assume it was something similar. Bottom line: while Porsche certainly would fit a lot of the fact pattern, I think his history suggests that’s not the deal.
Company #5: Hearst / Fitch
Why a Hearst deal makes sense: It’s certainly an iconic company (fun connection: Ackman is chair of HHC, and Citizen Kane is loosely based on a composite of Hearst and Hughes), and they have convulsed ownership stakes in enough things that they could have to spend months figuring out how to untangle or bless a change of control in all of those relationships (for example, Hearst owns 20% of ESPN). A particularly interesting asset within Hearst is Fitch, one of the big 3 credit ratings agencies. Maybe Ackman is looking to do a deal for all of Hearst. Maybe he’s looking to carve Fitch out from Hearst? Who knows, but the pieces do seem to fit.
Why it wouldn’t make sense: Most of Hearst’s assets are on the media side, and I don’t think Ackman’s ever made a media investment. Not only are they on the media side, they are on the legacy media side, so while I do think they fit the bill as “iconic”, I’m not sure they fit the bill as “a business that will be worth more in the future!” And while the Fitch idea (either as a cornerstone of a deal or as a carve out) is interesting, Ackman publicly called out Moody’s as part of his MBI short so I’m not sure if his history is super rosy with ratings agencies.
Company #6: An NYC real estate empire
Why a real estate deal makes sense: It would make for a great story (“I’m betting on iconic assets within an iconic American city that I love right before the city booms”). Ackman’s got a history of successful real estate investments (GGP is one of the best investments of this century), and between HHC, his attempts to turn around Stuyvesant Town, and his “investment” into a $90m NYC penthouse, he knows the NYC market well. Plus, given the tax issues and change of control for debt likely associated with an NYC real estate empire, a six month delay is easily explainable.
Why it wouldn’t make sense: A real estate deal just doesn’t seem to be what Ackman is talking about. While NYC is iconic, Ackman talked about buying an iconic company that would be worth multiples of today’s price if the markets shut down for ten years. That just doesn’t feel like a real estate empire!
Company #7: Cox Enterprises
Why a Cox deal makes sense: Cox Enterprises owns Cox Cable, Cox media, Cox Automotive, AutoTrader, Kelley Blue Book, etc. They’re owned / run by the fourth generation of the Cox family. For the most part, those are all good to very good businesses with that could loosely fit the “iconic” brand, and it’s pretty easy to say all of them will be around in ten years and worth more than they are today. Between the company having so many divisions and a family ownership being in the fourth generation, you could paint a picture where tax issues and/or carve out issues have created the deal delays. Bonus reason for delay: Cox invested $350m in Rivian back in 2019; Rivian’s prepping a $70B IPO, so maybe part of the delay is figuring out what the heck to do with that stake?
Why it wouldn’t make sense: None of these businesses are ones that Ackman has traditionally invested in; again, I can’t remember him ever buying a media company, . While the tax and carve out issues are certainly there, I don’t think they are “six months of delays” complex, and I’m not sure I would really call any of these business “iconic” even if they are well known. Plus, if Cox wanted to sell, they could almost certainly get a much, much better price selling to a cable mogul they knew and liked (like Malone or Roberts) who had synergies with their cable business!
Company #8: Bain Capital
Why a Bain deal makes sense: At the height of the crisis, Ackman said he was buying Blackstone shares, so he knows the industry well. As a private partnership on its second or third generation of leaders, Bain’s ownership structure is almost certainly super complex, which would explain the long delay to a deal. And Bain is the last of the major private equity players that remains private, so there would be some competitive rationale for a deal.
Why it wouldn’t make sense: While well known, I don’t think Bain would fit the definition of “iconic”. Also, Bill said in his WSJ interview that the valuation had already been settled back in November; Bain’s publicly traded peers are up >30% so far this year. I’d be pretty surprised if a sophisticated private equity firm wasn’t trying to recut their deal when peers had performed that well!
Company #9: A “big 3” consulting firm (or maybe accounting)
Why a big 3 deal makes sense: The big 3 consulting firms (McKinsey, Bain Consulting, BCG) probably qualify as iconic in the business community. I think history has proved out that the demand for consultants continues to go up as the business world gets more complex / specialized / management teams need something to cover their butts, and the big 3 have got a really powerful flywheel where they hire the best graduates from the best schools, train them for two years, get them placed in high powered jobs at giant companies….. and then have those former analysts hire them for consulting work at their new firm! These are all also global partnership models, so the tax and ownership structuring for buying one of these out would be incredibly complex and certainly would explain the delays. (Bonus note: You could make a somewhat similar argument for the remaining big 4 accounting firms).
Why it wouldn’t make sense: These firms pride themselves on the partnership models, so culturally I’m not sure they would really want to. I also don’t know if being a publicly traded company makes sense; do the consultants really want their clients to know how profitable they are? They’re also easy political scape goats and get caught up in some controversy every year or two; I’m not sure they make for great public market companies. Also, these are B2B companies where the employees’ intellectual capital is the business’s key asset; that just doesn’t seem like the type of thing Ackman buys.
Company #10: HEB / Wawa / Trader Joe’s
Why a Heb / Wawa / Trader Joe’s deal makes sense: All of these probably fit into the “iconic” brand description, though they’re probably more regionally iconic than nationally / internationally. The business of selling food and snacks isn’t going away anytime soon, so if you believed in their brands and local networks you could paint a picture where these easily met Ackman’s “worth multiples in a decade” line.
Why it wouldn’t make sense: I’ve never seen Ackman buy anything like a grocery store / convenience chain. Yes, the brands are good, but I’ve never seen him buy something that low margin / that reliant on inventory turns. I’m also not aware of any ownership complications or legal headaches for any of these companies that would explain the long deal delay Ackman’s discussed.
Bonus: why aren’t Bloomberg, Chick-Fil-A, or Cargill on here? All three are something of popular targets for a lot of the PSTH followers (particularly on the reddit boards), but I don’t think any fit.
Why not Chick-Fil-A? It’s in an industry Ackman clearly likes to invest in, but he just made a big investment into Domino’s and Chipotle and Restaurant Brands (QSR, which owns Popeye’s) are some of his funds largest investments. I’m not sure anyone would be happy with Ackman owning ~8% of QSR and a huge stake in Chick-Fil-A, and I also don’t see any huge ownership issues that would justify the delay since November on a potential deal.
Why not Cargill? I just don’t think it fits as an iconic brand, nor do I think it fits as the type of company Ackman typically invest in…. nor do I think there are six months ownership delays with buying Cargill.
Why not Bloomberg? Reporting suggests Ackman approached Bloomberg last year, and Bloomberg turned him down. Despite that, I know tons of people who think Bloomberg is still the target. I think it’s unlikely for two reasons. First, I don’t see why Bloomberg would have any issues on the seller side so serious that it would lead to six months of deal hiccups. Second, all of the reporting around the PSTH / Bloomberg report suggested Bloomberg did not want to partner with Ackman. So while I’m sure Ackman would like to do Bloomberg (or he would have at some point), I don’t think it’s a fit here.