Cadwalader Guides Ackman-Backed SPAC's Record $4B IPO

By Tom Zanki
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Law360 (July 22, 2020, 9:48 AM EDT) -- Pershing Square Tontine Holdings Ltd., a blank-check company backed by billionaire investor Bill Ackman, priced a record-breaking $4 billion initial public offering on Wednesday steered by company counsel Cadwalader Wickersham & Taft LLP and underwriters counsel Ropes & Gray LLP.

New York-based Pershing Square Tontine sold 200 million units at $20 each, raising $4 billion. The company's IPO is upsized from original plans to raise $3 billion by selling 150 million units.

The final deal is structured so that Pershing Square Tontine could have as much as $7 billion on hand by the time it finds an acquisition target.

Even at $4 billion, the IPO is the largest ever by a blank-check company. The largest U.S.-listed blank-check IPO was $1.1 billion earlier this year by Churchill Capital Corp. III, while London-listed J2 Acquisition Ltd.'s $1.2 billion IPO in 2017 was the largest global offering, according to Dealogic

Pershing Square Tontine units are set to begin trading Wednesday on the New York Stock Exchange under the symbol "PSTH.U."

Pershing Square Tontine did not immediately return a request seeking comment.

"We will have the largest amount of committed capital of any blank check company upon the completion of this offering," Pershing Square Tontine said in an amended registration statement filed with the U.S. Securities and Exchange Commission.

Blank-check companies, also known as special purpose acquisition companies, or SPACs, are shell entities that raise money through an IPO in order to acquire a private company and take it public. SPACs typically target industries reflecting the expertise of their management team.

Pershing Square Tontine is led by Ackman, the founder of hedge fund Pershing Square Capital Management, and CFO Ben Hakim, a partner at Pershing Square.

Pershing Square Tontine told regulators it plans to buy a mature "unicorn" — meaning a private company valued at $1 billion or more. The term is often associated with venture-backed technology firms that have raised large amounts of private capital but have yet to go public.

The long-term uncertainty of the effects of the coronavirus pandemic on capital markets has made going public through nonconventional ways more attractive, according to Pershing Square Tontine.

"The short-term impact of COVID-19 on many of these mature unicorns has, even with respect to many of the highest quality companies in this sector, reduced their revenues and cash flows, thereby increasing their need for additional capital," Pershing Square Tontine told the SEC.

"In light of our large amount of committed capital and our willingness to effectuate a merger in which our stockholders will own a minority, noncontrolling interest in a company, we believe that we are well-positioned to facilitate the recapitalization and public offering of a mature unicorn on terms that will generate attractive returns for our stockholders," the company said.

Ackman's blank-check vehicle brings more visibility to a segment of the IPO market that has been on a tear this year, especially since the coronavirus pandemic. Blank-check vehicles provide an alternative way of going public for a target company, which can negotiate directly with its acquirer rather than take its chances on a sometimes volatile IPO market. 

SPACs aim to complete an acquisition within a certain period or investors are promised their money back. Pershing Square Tontine expects to identify an acquisition within 24 months.

Pershing Square Tontine's IPO has several distinctive features.

Each $10 unit sold in the IPO consists of one common share and one-ninth of a redeemable warrant. Each whole warrant entitles the holder to buy an additional share at $23. Typical blank-check IPO sell units at $10 each and contain more dilutive warrant structures.

Pershing Square Tontine has also committed to a forward purchase agreement in which it will buy $1 billion worth of units at $20 each at the closing of an acquisition, according to its SEC filing. The units will consist of one share of common stock and one-third of a warrant.

Pershing Square Tontine said it also might elect to buy an additional $2 billion worth of units under similar terms. These provisions could potentially increase the total deal size to $7 billion.

Ackman's SPAC is also distinctive in that, unlike typical blank-check companies, which normally allow the SPAC founders to buy up to 20% of its acquired company's shares at a low price, the Pershing Square Tontine does not provide for that easy opportunity to generate a profit.

Pershing Square Tontine instead can only buy shares totaling 5.95% of the acquired company's equity if the resulting public company's stock price rises 20% above the IPO price — or to $24 a share. Pershing Square Tontine told regulators this provision ensures a better deal for investors.

"We believe that this incentive structure is better aligned with our stockholders and potential merger partners, substantially less dilutive than typical incentive arrangements in other blank check companies, and therefore will be more attractive to potential investors in this offering," Pershing Square Tontine told the SEC.

A Cadwalader team represented by partners Stephen Fraidin and Gregory P. Patti represented Pershing Square.

Citigroup Global Markets, Inc., Jefferies LLC, UBS Securities LLC, CastleOak Securities, L.P., Loop Capital Markets LLC, Samuel A. Ramirez & Company, Inc., and Siebert Williams Shank & Co., LLC.

A Ropes & Gray team led by partners Paul Tropp and Christopher Capuzzi represented the underwriters.

--Editing by Peter Rozovsky.

For a reprint of this article, please contact reprints@law360.com.

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