On second thought …
When Bill Ackman’s jumbo-sized SPAC, Pershing Square Tontine Holdings, struck a deal last month to buy a 10 percent stake in Universal Music Group, it did so with a highly complex transaction that took a lot of explaining. Now, pushback from the S.E.C. has forced Ackman to change course.
A quick reminder of how the original deal was supposed to work:
The Pershing Square SPAC would have invested $4 billion to buy a 10 percent stake in Universal Music, which is home to artists like Taylor Swift and Ariana Grande and was already being taken public by its parent, Vivendi.
The $1.5 billion left in the SPAC would have been rolled over into a new publicly traded acquisition fund that would have looked to do another deal.
Existing SPAC investors would have gotten a financial instrument that gave them the right to buy into yet another deal vehicle, which would seek its own takeover target.
The S.E.C. had concerns, namely whether it qualified as a SPAC deal at all. In a letter to investors today, Ackman said his team had failed to change the agency’s mind over multiple meetings. It didn’t help that investors in the SPAC seemed wary, too: Shares in Pershing Square Tontine had lost nearly a fifth of their value since the deal was announced. “We underestimated the reaction that some of our shareholders would have to the transaction’s complexity and structure,” Ackman wrote.
Now it’s back to the drawing board. Ackman’s hedge fund will buy the Universal Music stake directly instead. Pershing Square Tontine now has 18 months to find and close a new deal, unless shareholders give it more time, and “our next business combination will be structured as a conventional SPAC merger,” Ackman added.
Having got their heads around the Universal Music deal, will investors show relief or suspicion about the SPAC’s next move? Pershing Square Tontine’s shares are roughly back to their I.P.O. price, so it will be telling how they trade after the company’s pivot.
This is the latest sign of regulators reining in the SPAC market, making clear that they’re worried about protecting investors in those funds, which have boomed over the past year. Federal prosecutors and the S.E.C. are investigating Lordstown Motors, the electric truck maker that went public via SPAC and issued confusing information about its orders. The S.E.C. has charged the space travel company Momentus and its SPAC partner with misleading investors.
For all its complexity, Ackman’s SPAC was pitched as particularly friendly for investors, without the typical compensation for sponsors that has attracted criticism and regulatory scrutiny. Its deal with Universal Music also didn’t come with the overly rosy financial projections that mark many SPAC deals. In going after Ackman’s multilayered transaction, regulators appear to signal that they want SPACs to stick with a plain-vanilla approach.
HERE’S WHAT’S HAPPENING
England’s first day without pandemic restrictions is off to a rocky start. Hailed by tabloids as “Freedom Day,” today’s lifting of most virus-related limits has been marked by surging cases and staff shortages because of people self-isolating after being pinged by a government test-and-trace app. (Prime Minister Boris Johnson is among those in a 10-day quarantine.)
OPEC and Russia clinched a deal to increase oil production. The countries will pump more oil next month, increasing worldwide supplies by 2 percent. But supplies are likely to remain tight until at least the fall, analysts said.
Robinhood aims for a $35 billion valuation in its I.P.O. The online trading app revealed an expected price range for its market debut, kicking off a roadshow to prospective investors. That puts the company on track to begin trading next week.
An Israeli spyware maker is linked to hacking of activists, reporters and executives. An investigation unearthed 50,000 phone numbers associated with people of interest to clients of NSO Group, and attempts were made to break into dozens of smartphones from the list. NSO, which has been criticized for ties to authoritarian governments, denied wrongdoing.
Zoom makes a $15 billion bet on … phone calls. The videoconferencing company will buy Five9, a call-center operator, in its biggest acquisition to date. Zoom is looking beyond its core market as rivals muscle in on its turf.
Zegna gets a blank check to grow globally
In other news from the SPAC world, the luxury menswear brand Ermenegildo Zegna plans to end over a century of complete family control this morning by going public via a SPAC. It, like other high fashion companies, is bulking up as it bets that well-heeled customers will keep spending.
The company wanted capital to expand. Zegna will trade on the New York Stock Exchange by merging with a blank-check fund run by the European investment firm Investindustrial, gaining both $880 million in fresh cash and access to the capital markets to raise more. Gildo Zegna, its C.E.O. and the grandson of the company’s founder, made clear that M.&A. is in the company’s future: “We want to consolidate,” he said on a call with journalists this morning.
The backstory: The Zegna family was approached by the SPAC’s chairman, the former UBS chief executive Sergio Ermotti, in January. Before then, Gildo Zegna said, the company had been content to stay private: “There was not a competition between a SPAC and an I.P.O.”
Other luxury houses have been doing deals, too. LVMH bought Tiffany & Company earlier this year, while L Catterton, an investment fund backed by LVMH, is reportedly in talks to buy the label Etro. And both Capri Holdings (the former Michael Kors) and Tapestry (the onetime Coach) have struck acquisitions in recent years.
“I think if you define fairness by ‘fair market value,’ then C.E.O.s are paid fairly. I think if you define fairness by how you think society should value people, then I think C.E.O.s are paid too much.”
— Dara Khosrowshahi, the C.E.O. of Uber, in an interview with Times Opinion columnist Maureen Dowd.
Daily Business Briefing
The week ahead
▶︎ Another billionaire goes to space. On Tuesday, Jeff Bezos is expected to become the second billionaire rocket company founder to go to space this month. (Richard Branson beat him by nine days.) The billionaires’ trips are a small step toward a new frontier for tourism — and liability insurance.
▶︎ Earnings reports from United, Southwest and American Airlines will serve as a progress report for postpandemic travel. Delta Air Lines, which last week reported its first profit since the start of the pandemic, said domestic leisure travel had fully recovered. But there’s still a big question over whether business travel will ever be the same.
▶︎ The spectator-less Olympics start on Friday. Over the weekend, organizers reported the first cases inside the athletes’ village. Toyota, a major sponsor, said today that it would cancel its Olympic-related TV ads in Japan, as public opinion turns against the event. Hosting the Olympics rarely pays off for cities in the best of times, but it is shaping up to be particularly costly for Tokyo.
Is Facebook ‘killing people’?
President Biden on Friday told reporters that social media platforms are “killing people” by allowing vaccine disinformation to proliferate. The highly contagious Delta variant has fueled an uptick in cases, especially in places with low vaccination rates. Frustration with Facebook has grown after recent meetings between White House officials and company executives.
Facebook said it is a scapegoat for Biden’s missed vaccination goals. Guy Rosen, a Facebook vice president, wrote a lengthy blog post over the weekend entitled “Moving Past the Finger Pointing.” Among other things, he said that 85 percent of users in the U.S. “have or want to be” vaccinated, though some questioned the company’s numbers.
It’s complicated. As Kara Swisher noted in a Times Opinion column, Facebook is a gateway to both helpful and hurtful information, “presenting clearly solid information about Covid, as well as a place where an enormous flood of lies about it has overwhelmed the same zone.” Are the posts and videos that Facebook users see changing minds or reinforcing priors? We don’t know from the data released thus far, and the balance of celebration and scorn depends on it.
WeWork’s chicken problem
Masa Son, the head of SoftBank, once sent Adam Neumann, the founder and head of WeWork at the time, a picture of Yoda on which he had scribbled, “Chicken First!!” That odd piece of encouragement is just one of the eye-catching details in an excerpt from the new book, “The Cult of We: WeWork, Adam Neumann, and the Great Startup Delusion.”
Some of the other juicy anecdotes from the book — here is The Times’s review — written by The Wall Street Journal reporters Eliot Brown and Maureen Farrell:
Neumann said he needed $70 billion in funding to achieve his growth goals, several times more than any start-up had raised before.
Neumann told aides he wanted WeWork to buy the ride-sharing company Lyft, and held discussions to acquire the restaurant chain Sweetgreen.
Neumann wanted his contract with the company to say he could retain control of the company even if he were sent to jail for committing a felony.
Son’s cryptic message referred to the perennial chicken-and-egg question. Unmet demand is typically what hatches a new business idea. But Son advised Neumann that if he could show customers what a fully grown chicken looked like first, demand would follow. At the time, Neuman was expanding the company into things like yacht charters (WeSail) and preschools (WeGrow).
The result was a zoo. Son backed out of a key financing deal. Neumann got the boot. Then the pandemic hit and WeWork’s value plunged. One of the lessons is that breaking the rules of business is not always a recipe for success.
THE SPEED READ
Johnson & Johnson is said to be weighing whether to use bankruptcy laws to shield itself from lawsuits over talc products. (Reuters)
China reportedly plans to exempt companies going public in Hong Kong from the cybersecurity reviews that tripped up Didi Chuxing. (Bloomberg)
Is this medical lawsuit company, which is going public via a SPAC, really worth $33 billion? (FT)
The White House is expected to formally accuse the Chinese government of hacking Microsoft email systems used by thousands of institutions. (NYT)
Treasury Secretary Janet Yellen will meet with other regulators today to discuss the benefits and risks of stablecoins. (WSJ)
“What China Expects From Businesses: Total Surrender” (NYT)
The failure of a Chinese semiconductor company shows the limits of Beijing’s support for would-be national tech champions. (NYT)
Best of the rest
“What Ever Happened to IBM’s Watson?” (NYT)
Two Americans convicted of helping smuggle Carlos Ghosn out of Japan were each sentenced to over a year in prison. (NYT)
Britain’s biggest divorce case has ended with a $186 million settlement. (Bloomberg)
Curtis Sittenfeld’s latest short story: The fictional tale of a babysitter working for a family that looks a lot like a real-life billionaire clan. (The Atlantic)
We’d like your feedback! Please email thoughts and suggestions to [email protected].