Bill Ackman’s plans for the largest ever trust IPO in US history, a $25bn float of closed-end fund Pershing Square US, are no more.
The billionaire hedge fund manager admitted defeat late last night, withdrawing his proposal that he hoped would be a competitor to Warren Buffett’s Berkshire Hathaway.
While Ackman said Pershing had received “enormous investor interest”, he questioned if investors would be “better served waiting to invest in the after-market than in the IPO”.
This may be an oversimplification.
While Ackman had been aiming for the $25bn price tag, he downgraded that target last week to between $2.5bn and $4bn. By this week, it was $2bn.
That was precisely because of a lack of investor interest. As an important example ,one of the key investors for the IPO, hedge fund Baupost Group, who had apparently been pledging $150m, pulled out in recent days.
However, Ackman’s point does make sense when you consider that while he was aiming for the trust to trade at a premium to its net asset value, at the same time the UK vehicle trades at a 28 per cent discount, leaving investors less likely to pay full price for the shares at float.
The hedge fund manager also didn’t make things easy for himself either. In a presentation to potential investors, Ackman made a series of blunders, needlessly disclosing more than he needed to in a way that could turn off institutional investors.
Meanwhile, Ackman’s social media presence probably hasn’t helped. His X (formerly Twitter) feed is full of conspiracy, right-wing punditry, and slightly odd stuff.
Consequences for Pershing Square Holdings
“This is bad news for investors in the London-listed vehicle, who had been hoping for a fee reduction,” said James Carthew, head of investment companies at Quoteddata, as there had been a plan to offset the fees on Pershing Square USA against performance fees on Pershing Square Holdings in the UK.
As Pershing’s UK version is listed in London, trust managers on this side of the Atlantic had been watching closely for any effect it could have.
Plans were also apparently in place to reduce Pershing Square Holdings’ outsized bet on Universal Music by selling some of the position to Pershing Square US.
However, Carthew said the point was now moot as Universal Music plummeted from a share price of around €28 to around €21 last week following a disappointing second-quarter update.
Ackman’s trust took a significant knock from the Universal Music crash, falling by almost 12 per cent last week.
“With less firepower to support a deal, there will also need to be a rethink about what sort of business Pershing Square Tontine Holdings could acquire. Any deal may be on the back burner for now,” said Carthew
“Notwithstanding all of this bad news, Pershing Square Holdings shareholders have had a great run over the past year, with the shares up almost 30 per cent even after the recent Universal related pullback,” he concluded.