Pershing Square Tontine Holdings

Pershing Square Tontine Holdings (PSTH) was a Special Purpose Acquisition Company, or SPAC, sponsored by the hedge fund Pershing Square Capital Management, led by famed activist investor Bill Ackman. Launched in July 2020, it shattered records by raising $4 billion in its Initial Public Offering (IPO), making it the largest SPAC in history. Like all SPACs, PSTH was a “blank-check” company, a publicly traded pool of cash with a single mission: to find a high-quality private company and merge with it, thereby taking the target public. What set PSTH apart was not just its colossal size, but also its unique “tontine” warrant structure. This was cleverly designed to reward shareholders who held on through the merger process and discourage the short-term speculators who often plague SPACs. The hype was immense; investors weren't just buying a pile of cash, they were betting on Bill Ackman's Midas touch to find and acquire a “mature unicorn” – a large, profitable, and durable private enterprise.

PSTH's arrival was perfectly timed with a massive boom in SPACs. Yet, it stood out from the crowd for several compelling reasons.

• Sponsor Quality: In the world of SPACs, you're not investing in a business, you're investing in a person. The sponsor's reputation is everything. With Bill Ackman at the helm, PSTH had an A-list manager known for deep, fundamental analysis and a strong value-investing track record. This pedigree gave investors confidence that PSTH would hunt for a truly exceptional business, not just any deal to get fees.
• Scale and Ambition: The $4 billion war chest (plus an additional commitment from Pershing Square itself) meant PSTH was fishing in a different pond than its smaller rivals. It could target massive, well-established private companies that would normally be too large for a typical SPAC, like a Stripe, Plaid, or Bloomberg.
• The “Tontine” Twist: This was PSTH's secret sauce. In a typical SPAC, all initial investors get warrants (the right to buy more shares at a fixed price). Many investors sell their shares but keep the “free” warrants, diluting long-term holders. PSTH's structure was different. Only shareholders who did not redeem their shares for cash before the merger would receive the warrants. This was a brilliant mechanism designed to align interests and reward patient, long-term capital – a core tenet of value investing.

For nearly a year, the market eagerly awaited Ackman's choice. The speculation was intense. Then, in June 2021, a target was announced, but it wasn't what anyone expected.

PSTH announced a complex deal to acquire 10% of Universal Music Group (UMG), the world's largest music company, from its parent, Vivendi. This wasn't a standard SPAC merger. Instead of merging with UMG and taking it public, PSTH would simply buy a minority stake before UMG's planned European IPO. The remaining cash in PSTH would be used to create a new vehicle, a “SPARC” (Special Purpose Acquisition Rights Company), to hunt for another deal. The market was confused, and regulators were skeptical. The U.S. Securities and Exchange Commission (SEC) raised concerns, questioning whether this intricate, multi-step transaction qualified as a conventional business combination under SPAC rules. The complexity, designed to be a clever workaround, became the deal's Achilles' heel. Facing regulatory roadblocks, Ackman and PSTH were forced to abandon the UMG deal just a month later.

After the UMG deal collapsed, the clock was ticking. PSTH had until July 2022 to find another target. Despite rumors of other potential deals, no new merger was announced. Having failed in its mission, PSTH did the only thing it could: it returned all its capital to investors. In July 2022, Pershing Square Tontine Holdings was formally liquidated, and shareholders received back their original investment of $20 per share. The biggest SPAC in history ended not with a bang, but with a whimper.

The spectacular rise and fall of PSTH offers timeless lessons for any investor.

• Complexity Kills: As Warren Buffett often advises, invest in what you understand. The UMG deal was too clever by half. Its labyrinthine structure made it fragile and ultimately led to its demise. Simple is often safer, and better.
• Even the Best Can Fail: PSTH had the best sponsor, the most investor-friendly terms, and massive ambitions. Its failure is a humbling reminder that there are no sure things in investing. Diligence is key, but so is a healthy dose of skepticism, no matter who is running the show.
• Structure is Not a Substitute for a Good Business: PSTH's innovative tontine structure was brilliant, but without a successful deal, it was meaningless. Financial engineering can be helpful, but it's no replacement for the fundamental value of an underlying operating business.
• The Downside Protection Worked: While PSTH didn't generate returns, investors did get their initial capital back (less any opportunity cost). This highlights the core safety feature of a pre-deal SPAC: you are essentially buying cash in a trust, with a claim to that cash at its Net Asset Value (NAV) if no deal materializes.