Doc's Daily Commentary

Mind Of Mav

PSTH SPAC Overview

This is an investment thesis I shared on the Discord last week.

Background

Bill Ackman is the hedge fund manager who recently made “the single best trade of all time” by betting against the market and turning $27 Million into $2.6 Billion when the market crashed in March: https://www.marketwatch.com/story/how-the-single-best-trade-of-all-time-netted-one-investor-a-26-billion-profit-2020-04-29 … https://www.businessinsider.com/bill-ackman-billionaire-hedgefund-manager-made-billions-off-coronavirus-crash-2020-4

So, what’s important to know and what I want to share with you is that Ackman recently announced the biggest SPAC ever – and we can get a piece right now! Ackman’s firm, Pershing Square Management, announced plans publicly list a $4 billion SPAC: https://www.renaissancecapital.com/IPO-Center/News/69470/The-biggest-SPAC-ever-just-got-bigger-Pershing-Square-Tontine-Holdings-ups-

Before this, the largest SPAC raised $1.1 billion, so immediately this is opening exciting possibilities.

We covered what SPACs are and why they’re essentially “IPO 2.0” in last week’s newsletters:

https://readysetcrypto.com/rscdpremium-july22_2020/

https://readysetcrypto.com/rscdpremium-july23_2020/

Current Status

Here’s where things get really interesting and potentially very lucrative. Yesterday, Pershing’s SPAC made its debut on the New York Stock Exchange in the largest-ever blank-check initial public offering.

The offering includes 200 million units at $20 each: https://www.barrons.com/articles/bill-ackmans-blank-check-company-starts-trading-today-what-you-need-to-know-51595422200 Pershing Square Tontine Holdings will initially trade under the ticker PSTH.U. As it is on the NYSE, they can be acquired using a broker like Fidelity

Currently, one Unit of PSTH.U is trading for $21.88 https://www.marketwatch.com/investing/stock/psth.ut

Within a few months, the Units will split, which will allow Shares (common stock) and Warrants (similar to option but traded like stock) to be traded separately under the symbols PSTH and PSTH.WS, respectively.

Hunting Unicorns

Ok, so we’re clear:

We can now get into PSTH. What that investment represents is the possibility that Ackman and PSTH announce soon that they’re doing a reverse-merger with a well-known, highly-valued company looking to go public. By investing in the PSTH SPAC, you are betting that they nail a deal and you get to be an investor in the next hottest stock going public, similar to what we just saw with Nikola (NKLA) and Virgin Galactic (SPCE), both of which also went public using SPAC IPOs. Let me emphasize that PSTH is the largest SPAC ever, and so potentially represents an even larger ROI.

Ackman appeared on Bloomberg last week and said they’re pursuing a “Unicorn Mating Dance”: https://www.youtube.com/watch?v=Pzz5SGpDrc4 Unicorn is a nickname for a startup with a $1 Billion+ valuation. Unicorns used to be extremely rare, but as of today there are around 400 Unicorns around the world: https://www.cbinsights.com/research-unicorn-companies

To recap, here’s what we know:

PSTH has $4B in dry powder and they’re on the hunt for a “private, large capitalization, high-quality, growth company,” that they can take minority position in and go public with. In their own words, they’re looking for a “mature unicorn”, which are privately owned and possibly venture capital-backed tech companies that have ballooned to large valuations and moved past the peak loss-making stage of their growth. Ackman did mention that they had already begun identifying targets and intended to move quickly to close a deal. “We don’t require the company today to be cash-flow positive on an overall basis,” Ackman has said. He isn’t looking for energy companies that are bankrupt but “will certainly look at” businesses that will survive the coronavirus pandemic and become a strong player.

Speculation Time

The game, as it currently stands, is betting which company PSTH decides to go with. So, now we have to dig for clues and make an educated guess. Based on that Unicorn list earlier, and because of what PSTH / Ackman have stated they are looking for, we can immediately reduce the potential candidates to a few likely targets. Here’s the shortlist:

Impossible Foods, AirBnb, Rivian, Palantir, Bloomberg, SpaceX, and Robinhood.

I don’t know about you, but I’d love to own pre-IPO shares of any of those!

Let’s go through each:

Potential Picks Analysis

Impossible Foods – Ackman has a wide restaurant portfolio. Another of Ackman’s blank check companies, Justice Holdings Ltd., which raised $1.44 billion in a 2011 listing in London, merged with Burger King Worldwide Inc. Burger King has partnerships with Impossible, so there is some history to draw from. Furthermore, Beyond Meat is currently the only public meat replacement companies, so Impossible will likely have a very strong IPO as well as future performance. All this gives it a small potential, I’d wager it’s a 15% chance.

Impossible Foods will sell its improved meatless burger at select ...

SpaceX – Given the recent success of Tesla, which as of yesterday can now join the S&P500, there is certainly a growing chorus for Elon’s other major venture. “We have a lot of admiration for Elon Musk and what he has accomplished,” Ackman has said. Undoubtedly, SpaceX is dominating the new private space race, and with continued Starlink rollout and a new focus on “rideshares for small satellites”, they are continuingly innovating and pushing the boundaries even with the constant setbacks and challenges of operating in space. Virgin Galactic’s SPAC IPO earlier this year was significant as, for the first time, anyone now has the opportunity to invest in a human spaceflight company that is transforming the market. Despite the positives, there is little indication that SpaceX will be chosen, so I’d wager it’s a 5% chance.

NASA announces first SpaceX crewed flight for May 27

Bloomberg – Ackman has stated he wants Bloomberg, but I’d suspect they’re too large and established to entertain the offer. I’d wager it’s a <5% chance.

Amazon.com: Bloomberg: Appstore for Android

Palantir Technologies – The data-analytics firm co-founded by investor Peter Thiel in 2003 filed to go public earlier this month. The company had about $700 million of revenue last year, according to Reuters sources – Palantir’s financials are still confidential for now. Helped by governments desperate to track and make sense of the coronavirus pandemic, top-line growth has perked up. The firm expects about $1 billion of revenue this year and perhaps $1.5 billion in 2021, according to Reuters. However, A Democratic win in November’s U.S. presidential election could mean reductions in the defense budget and perhaps Palantir’s prospects. Given some mutual interest overlap, I’d wager it’s a 30% chance. https://www.vox.com/recode/2020/7/16/21323458/palantir-ipo-hhs-protect-peter-thiel-cia-intelligence / https://lipperalpha.refinitiv.com/2020/07/breakingviews-palantir-mystery-extends-to-public-market-value/

Rivian Motors – Rivian is much closer to producing and delivering its final product than Nikola is, and they have deliveries coming in 2021. Q4 2020 was the original target period pre-covid, so there might be some disruption in their schedule. So far as many analysts are concerned, they will be one to watch in the coming years, especially as Tesla has crossed the chasm of EVs and they’ve gained mainstream staying power. What’s definitely the case is that SPACs are the hot item in the market, especially in the EV and sustainable energy fields. However, Rivian is valued between 5-7 $B right now, so it would take a strong war chest to entice them, maybe even bigger than PSTH’s $4B, so I’d wager it’s a 10% chance.

Robinhood – Not much to go off here, but it’s still likely being considered. I’d wager it’s a <5% chance.

Why Did Robinhood Launch Cryptocurrency Trading?

Airbnb – This is currently the most likely pick based on what we know. Airbnb reached a valuation of $30B before the pandemic struck, and is currently worth somewhere between that and $18B on the low end. It recently raised $1B in PE funds (Silverlake and partners) for which it is paying >10% interest – high-yield/junk territory. Simply put, they aren’t doing as well as they used to. Liquidity will also be an issue given the fallout from Covid, and a traditional IPO right now would be really tough. PSTH is really the only SPAC with enough heft to make a material investment at this level – and the timing of Chesky’s comment in a Reuter’s article yesterday seems to confirm this is being discussed – https://www.reuters.com/article/us-airbnb-ipo/airbnb-approached-about-blank-check-company-merger-for-public-listing-ceo-idUSKCN24N335

Bonus: it’s in Ackman’s wheelhouse, given his history with Hilton. I am concerned somewhat that it seems like Airbnb has been destroyed by the pandemic as bookings have plunged by 80% in the last 6 weeks – https://www.dailymail.co.uk/news/article-8549771/Travel-knew-January-NEVER-coming-Airbnb-founder.html – so they are likely desperate for capital and would want to merge as soon as possible. That is a good sign for those who are worried about being forced to hold onto PSTH for over a year. We should also consider that Airbnb has a limited ceiling as a public company, and it’s not just because of Covid. Its has has constant squabbles with jurisdictions that want it out of their cities (similar to Uber). Fewer markets, fewer rental opportunities, and dimming growth prospects have severely affected its valuation. “Once a rare profitable unicorn, the popular home-sharing platform is now losing money” – https://www.vox.com/2020/2/12/21134477/airbnb-loss-profit-ipo-safety-tech-marketing

Airbnb will now have a 'Party House Rapid Response Team' - Esquire ...

Another thing to consider is that Airbnb is probably viewed similar to airline stocks; pretty much radioactive at the moment. Nonetheless, Airbnb is a huge name. It will go public at a difficult time, but that’s why it’s a prime candidate for a SPAC. They get the guaranteed valuation and liquidity they need to recover, Ackman gets the minority interest and rock-stardom he craves, and we get the gains we’re all here for. I could see this pick will balloon PSTH to at least $40 (double the amount right now) if Airbnb is confirmed. I’d wager it’s an 80% chance.

Summary

This is a under-the-radar opportunity to get in on potentially a winning pre-IPO stock, and as far as SPACs go, one of the most exciting we’ll see this year. TBD which company Ackman and PSTH go with, but regardless, it’s got a lot of positive factors and is about as surefire as pre-IPO bets go.

If you read the whole thesis, thanks for making it all this way! Hope you learned something and are interested in getting involved in this potentially very hot space before it’s more widely known!

As I talked about in last week’s newsletter, SPACs represent the potential to be Cryptomania 2.0, with nearly all of the hype and crazy gains we saw in 2017.

Let me know what you think! Cheers!

Q & A

Here are some questions that were asked in Discord:

Q. Is this for accredited investors only?

A. Nope! You have every right to invest in this as it is a public market. That’s the big difference between SPACs and ICOs (unlicensed public securities) or STOs (private equity that is subject to accredited investor protections). Great write up here: https://www.hblr.org/2012/10/spacs-and-the-jobs-act/

Q. Do we need to register with Renassaince capital for investing into this opportunity?

A. Nope! You’re able to trade SPACs just like any other stock. I know that PSTH is trading on Fidelity, Schwab, and TDA, for example. That said, be aware there are going to be some complications, e.g., on TDA, you can’t find the ticker “PTSH.U” normally. You’ll have to type “PSTH/U” then click enter and it will pop up. Another thing is that it has to be a limit order. As its an IPO you can’t place a market order. I know that some brokers don’t allow buying SPACS on margin. E-Trade doesn’t for example. I know Robinhood let’s you buy SPAC commons on margin, though.

Q. What kind of minimum investments are we looking at here?

A. The minimum is 1 Unit. It’s just like buying stock, but it’s a little weird. When the IPO occurs, a SPAC generally offers Units – generally at $10 per Unit.

These Units are comprised of one share of common stock (Share) and a Warrant (or portion of a warrant) to purchase common stock (generally exercisable at $11.50). Depending on size, prominence/track record of sponsors, and investment bank leading IPO, Units may consist of one Share of common stock plus one full Warrant, ½ of one warrant or ⅓ of one warrant. In the weeks after the IPO, the common stock (Shares) and Warrants included in SPAC Units become separable. At that point, the Warrants and Shares trade separately alongside the unseparated Units. For example, PTSH.U (units) will become PSTH (common shares) and PTSHW (warrants) on August 13th. The units were released yesterday, and are 1 common and 1/9 warrant each.

So, it’s a better deal than a common for the same price later, as you get a partial warrant too. It’s also a good idea to remember to buy units in multiples of 9. You don’t have to do this, but it’s still a good idea to purchase in multiples of 9. You just have to ensure your end unit count is a multiple of 9 (or 3 if you plan on holding all the way through) by August 12. You can buy 3 today, three the next, and three the following. No need to purchase in blocks of 9, end total is all that matters.

Q. And also wondering if I (based in Netherlands) can buy it

A. You should be able to if you can locate the ticker. Interactive brokers I know for a fact has PTSH.U

Q. My understanding is that each of this opportunity is going to be seperate for company vs a basket investment(something like a fund)

A. It’s 1:1 The SPAC is just a “shell” or “blank check” company that the company going public reverse merges into. It’s basically just a new coat of paint that lets them skip past a lot of the BS normally associated with a traditional IPO

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