[size=4]CONTEXT[/size]
So, I think we can all agree 2022 may be a rocky year. Questions are flying around the server and on the interwebs. Are we at the top? When should I buy the dip? Are we entering into a recession? Is Putin gonna nuke Ukraine? Are we entering WW3? Will there be another COVID lockdown? Will No Bags dethrone Conq? What do I do with my cash??
All reasonable thoughts to have in these uncertain times.
If you are someone who is super uncertain and want to just sit on cash, well here is a DD for you because I guarantee this is at least better than holding cash.
I’m talking about $PSTH - Pershing Square Tontine Holdings. We had a brief thread on this back in November 2021, but I am going to remake a post as a refresher and with more emphasis on only need-to-know information. However, the PSTH structure is fairly complex so bare with me. I think this is 100% up @RefirgerateMyESSCash’s alley tbh.
[size=4]BOTTOM LINE FIRST (TL;DR)[/size]
Instead of holding cash, buy PSTH shares under $20 per share before May 8, 2022. Upon PSTH dissolution this year, you can get $20 per share back and receive 1 SPAR subscription warrant per share. So basically you get all your cash back and also free SPAR warrants appear in your portfolio as well which will be publicly traded on the NYSE! SPAR warrants are basically like a SPAC but without having to tie your money up while you wait for a merger (10 years expiration for SPARs). SEC approval/disapproval is due on May 8, 2022.
Edit: NYSE has updated to state that they have pulled back on their approval of trading SPARs. Therefore, if SEC approves SPARs, they will be traded on the OTC market instead.
[size=4]DETAILS[/size]
Here’s what you need to know:
PSTH is a SPAC with a NAV of $20.00.
PSTH is currently at $19.92. Only a month ago this was at around ~$19.70 to $19.80. (I’ll get into why it’s moving up now in a minute).
PSTH is spearheaded by famous hedge fund manager Bill Ackman.
Bill Ackman designed PSTH to be the most investor-friendly SPAC on the market, i.e. no Founder shares and no PIPE dilution, etc. Basically, this is not supposed to be some scammy merger to get the SPAC team a big loot and they run. This is meant to be fair game for all investors, including retail investors.
PSTH has until end of this year to complete a merger or dissolve.
Bill Ackman recently designed a structure that is even more investor-friendly than his SPAC. He designed SPARC - Special Purpose Acquisition Rights Company.
Here’s how SPARC works: Instead of buying shares of a SPAC and having your cash tied up for 2 years waiting for a merger, you own SPARs (Special Purpose Acquisition Rights) subscription warrants. SPARC will have up to 10 years (instead of the usual 2 years for a SPAC) to find a merger. After SPARC announces a Definitive Agreement with a merger, you, as an owner of a SPAR warrant, will have the option to “opt in” to the transaction within 20 business days of the DA, or sell your warrants on the NYSE. By opting in, you will pay a minimum strike price of at least $10 per warrant. The strike price of the warrant will adjust depending on how much money the SPARC needs for that particular merger transaction (meaning SPARC can adjust the target size and valuation of the merger as needed). If you opt in, you will pay the strike price and also receive new SPARs to await the next merger transaction — therefore, these are subscription warrants.
Here’s how you get SPARs: At the time of PSTH dissolution or merger completion (regular SPAC way), you will receive 1 SPAR per share of PSTH Common Stock, or 2 SPARs per PSTH Warrant.
The deadline for SPARC approval by the SEC is May 8, 2022. If approved by the SEC, SPARs will eventually be tradeable on the NYSE. I believe this is why PSTH is starting to return to $20.00 again. It’s gaining interest for this deadline.
OK but why not just buy PSTH Warrants? They’re going for ~$1.00 per warrant and I get 2 SPARs as opposed to paying $20 per share and getting 1 SPAR per share? You could, but the risk is that the SEC does not approve SPARC on May 8, and PSTH still dissolves. Upon rejection of SPARC, PSTH-WT will likely decline in price and at dissolution of PSTH, the PSTH-WT would expire worthless.
If you buy PSTH shares, upon PSTH dissolution, you can receive your $20 per share back and receive 1 SPAR per PSTH share if approved by the SEC. Better than holding straight cash.
Here are some useful slides from the Pershing Square Holdings investors presentations:
As always, great write-up Kev. Have heard a lot about PSTH but never looked into the SPARC structure (thinking it too daunting), and this explains it very well.
Can’t resist the idea of getting something for nothing. I’ll move most of my cash into this next week.
One idea, as it’s also hard (for me, at least) to resist using ITM calls in some way:
If we think SEC approval is very likely (would require some further research) the market would likely give some value to the warrants, thereby bumping the true value of PSTH commons over $20.00.
The May 20th expiration is the only date that seems to have guaranteed ITM calls ($19 strike) priced with very little extrinsic (last price of $0.96). And it is, of course, after the deadline for SEC approval.
For those who want to get the warrants (assuming SEC approval) but don’t want to deploy a lot of cash quite yet, buying the $19 calls could both be a good way to “save your place in line” and also potentially turn a 5+% profit if, as we approach May 8th, the market starts pricing in a high likelihood of approval and the expected (very speculative) value of the SPARC warrants.
The risk is, of course, that the approval does not go through and PSTH underlying sinks back to 19.85-19.90. Also, depending on your broker, you might not be able to do limit orders in $0.01 increments (e.g., Fidelity has $0.05 increments on most options), meaning you’d either have to set an order at $0.95 and potentially never get filled, or set an order at $1.00 and pray you don’t get a bad fill. I will play around with this on Monday and report back.
Deadline is July 11, you get your $20.015 / share in cash back around that date when they dissolve.
The market’s basically pricing in the fact that you will receive nothing except the cash back when the SPAC dissolves, so there’s really no downside and there’s the chance you get SPARC warrants out of it. If you compare the yield assuming you get nothing other than the cash on PTSH vs a 3 month t-bill it’s probably about the same.
I would absolutely not buy the warrants on this though. The shares get their money back and a possible SPARC warrant if approved, but PTSH warrant holders get zeroed if it dissolves without the SPARCs being approved.
IIRC they have a 6 month extension to their original IPO expiration in July, making the end of PSTH in January 2023.
This is because when a SPAC announces a DA and it gets cancelled, they are granted an additional 6 months to complete a merger. PSTH did initially have a DA with Universal Music Group but the deal got blocked by the SEC due to the complex nature of the merger and PSH fund bought the UMG stake instead.
They get 6 months additional to complete THAT merger if the pending merger isn’t completed by the deadline.
Now that the merger’s been called off, they have until the original deadline to find another target. If they find another target they get an additional 6 months to finish that one. If that one also gets called off sometime after July 11, then they would have to dissolve immediately.
I’m fairly certain this is the way it works. Not 100% sure though.
If true, that makes this play even more compelling!
Assuming PSTH has no actual merger in the works right now, this means that cash would only need to be held in PSTH stock until dissolution on July 11 rather than January 2023.
No, but it means SPARs won’t be initially traded on the NYSE if approved.
In light of the withdrawal of the proposed listing rule and the resulting delay in obtaining listing of the SPARs on the NYSE, SPARC intends to seek effectiveness of its registration statement with the SEC with the SPARs to be traded on the OTC market.
So the current play is that PSTH is still waiting for SEC approval/rejection by May 8. However, being listed on OTC instead of NYSE may make SPARs less attractive to trade.
SPAR warrants are under review to see if they can tradable on the OTC market instead.
10 days ago an S-1/A was filed for SPARC. Basically, it amended the math to reduce the float of SPARs but you’re still getting the same opportunity. The new SPARC formula works like this, assuming that SPARs get approved on the OTC market: 1 SPAR entitles you to 2 shares of the future merger transaction. Every 2 PSTH shares gets you 1 SPAR. Every 1 PSTH warrant gets you 1 SPAR.
Reminder that if SPARs get rejected on the OTC market, the PSTH warrants will be worthless at July 11 dissolution of PSTH. However, if you buy shares, you can get $20 back per share.
I already own a handful of PSTH shares, and will probably snatch up some more while it continues to trade under $20.
Also these flows are kinda interesting from June 22, because of their size, and because there is basically no active options market for PSTH anymore so these are particularly notable.
Looking into those flows a bit more on UW, the Flow History tab seems to show that the August 21c were filled between 0.01 to 1.90. I guess the 1.00 on the flows page indicates an average. 1.90 is insane for that strike and expiry.
It is intended for SPARs to be distributed at ½ SPAR per share, and 1 SPAR per warrant, for shareholders of record date July 25, 2022. PSTH will no longer be trading on July 26.
Distribution of SPARs is estimated to be in Fall 2022.
Distribution of SPARs depends on whether the SEC will approve the revised registration statement filed on June 16th, and is completely uncertain.
NAV per share is confirmed to be $20.05.
tl;dr of the tl;dr
Idk what to do with excess cash so I’ll be continuing to hold my PSTH shares that I bought for <$20 until PSTH returns me $20.05/share on July 26. Hopefully SPARs get approved.
We intend to distribute SPARs to PSTH security holders who own either Class A Common Stock (ticker: PSTH) or warrants (ticker: PSTH.WS) as of the close of business on July 25, 2022 (the last date such instruments are redeemed or cancelled): ½ of a SPAR for each share of common stock and one SPAR for each warrant. The timing of the SPAR distribution will be determined by reference to the date SPARC’s registration statement becomes effective, which we would not expect to occur until Fall 2022. SPARC filed a revised registration statement with the SEC on June 16th containing detailed information, risk factors, and other disclosures about SPARC which can be found at www.sec.gov. SPARC’s registration must become effective in order for SPARs to be issued, and there is no certainty that this will occur.
You have to keep in mind the people who give a crap about the SPAR are the same morons who bought a $20 bill for $30. I did buy PSTH at 19.8x - 19.9x a couple months ago as a lottery ticket for a surprise DA, or the possibility the SPARs get approved (for the NYSE), figuring worst case scenario is I get my $20 back in a couple months.
The people buying now are probably in the hole big time and figure they’ll average down to get more SPARs lol… until ackman fucks them again.
Even if the SPARs are approved (and that seems like a big if at this point), what are those things going to be worth? It’s basically a right to buy in to some unknown IPO sometime in the distant future. Unlike warrants, which you can wait until the stock appreciates before exercising, the SPAR expires unless you decide to buy into the deal on the merger date. Considering what SPAC warrants are going for nowadays, I can’t see those things trading for more than a quarter or so.
The SPARs have something like a 10 year timeline IIRC. They’ll be worth whatever people decide to value/trade them at. At any point you can decide to trade them on the open market if you don’t wanna hold anymore or don’t like the future merger.
Even if they’re nearly worthless, hey free money is free money! Let’s say SPAR manages to hold an approximate value of $0.25 each on the open market:
1 PSTH share grants you half a SPAR
Half a SPAR would mean granting ~$0.125 value per share, making PSTH worth $20.05 + $0.125 = ~$20.12
All assuming SPARs get approved at all on the OTC market.
Yeah, the IF they get approved part is the issue here and why I don’t think PSTH is worth a cent over NAV.
They already rejected NYSE’s rule change to allow SPARs to trade on the NYSE (technically NYSE pulled it to avoid a rejection). I don’t see why the SEC would approve it to trade on the less regulated OTC when they have fraud concerns about it.
