The world’s largest SPAC – Pershing Square’s “tontine” – is “deeply engaged” in a transaction that could close in the next few weeks, according to Bill Ackman.
Ackman is the founder and CEO of Pershing Square Capital Management, an activist hedge fund management company. He spoke on May 12 at the Wall Street Journal’s “Festival of Everything.” He was interviewed by Jamie Heller, the business editor at the Journal. 
SPACs have been justifiably labeled as overhyped, bad deals for retail investors. But Pershing Square is the exception. Its tontine SPAC has unique features which align the sponsor’s financial incentives with those of its investors.
Ackman was cautious about discussing the potential deal. But he disclosed that he is talking with a merger-friendly entity. “We will have something people are excited about in a reasonable amount of time,” he said.
The challenge is in finding a suitable deal was not the rise in prices among stocks, he said. It was the nature of the target company and solving the details of a complex transaction.
He said he was looking for a “mature unicorn” or a “super-high quality, durable growth company,” which could be a carveout from an existing corporation. He has $5 billion to spend and is looking for an investment that will deliver multiples of growth in the next decade.
Ackman said the deal he is considering is led by an “iconic management team” that meets all his criteria. “I am cautiously optimistic,” he said and has been focused on this one transaction for a long time.
“Our goal is to solve the problems of the seller,” Ackman said, and to remain a minority shareholder.
There is no certainty a transaction happens until a deal is signed, he cautioned.
Ackman said that Pershing sold its stake in Starbucks because it got to a price where he could not earn the excess return he wanted.
But he disclosed that he now has a 6% stake in Domino’s pizza.
Ackman likes the restaurant industry and said he has never lost money in it. His past investments have included Burger King and Chipotle. Domino’s is a pure franchise that owns its delivery infrastructure, which means it is not dependent on services like DoorDash. He said it is extremely well run and has an opportunity for international expansion.
He said he has admired Domino’s for years, and for “about five minutes” it got cheap enough to buy at approximately $330/share. On the day he spoke, it traded at $424/share.
Domino’s is a “great ESG story,” Ackman said, because its employee incentives allow its drivers to potentially become millionaires.
Ackman said the U.S. economy is “crushing it.” Businesses are booming, restaurants are booked, open indoors and outside. There is a huge demand for labor and there are plenty of jobs, according to Ackman. Wages are going up. The key in a world where there will be inflation is to have pricing power and to be insensitive to increases in interest rates, he said.
Indeed, there is inflation, Ackman said, and it is not temporary. There is a new baseline in wages, and commodity prices are rising, as is housing and bitcoin. “Everything is inflating,” he said.
He attributed this to consumers emerging from pandemic with animal spirits, getting vaccinated, and benefitting from federal stimulus payments and accommodative monetary policy.
“The Fed will have to raise rates because there is a risk of overheating,” he said.
Ackman was very bullish on housing. Millennials can afford to buy a home with low mortgage rates. People are not going to want to be stuck in their apartments. He has seen growth in a company he owns, Howard Hughes, which is focused housing in the southern and southwestern parts of the U.S.
He is staying in New York City, though, despite the taxes. “One of the benefits of being successful is you can choose where to live,” he said. “It is silly to run away from tax rates.” The long-term future of places like New York is less certain. Tax policies should not penalize one class of people relative to another, he said.
New York will react as more wealthy people move because of taxes. He wants a pro-business mayor New York City. He said Ray McGuire and Andrew Yang are great candidates. “It really matters who the next mayor is,” he said.
Don’t expect to see another proxy battle from Pershing, but he still values shareholder activism. Boards have come to understand their responsibilities, he said, and people know that firms like Pershing will react when companies don’t act in their shareholders’ interests. “The result is that we don’t have to have big battles,” Ackman said. He had fought a five-year battle to gain board seats at the company Herbalife, which he said was the only time he had “guns blazing” as a short seller. He lost a lot of money in that effort.
Cryptocurrencies are one of the best speculations ever, but Ackman would not invest in them personally or professionally. “There is no intrinsic value,” he said. “There is no cash-flow generation.” He doesn’t own gold for the same reason.
Robert Huebscher is the founder and CEO of Advisor Perspectives.
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