Without any agreement, Pershing Square Tontine is running too hot

Bill Ackman’s Special Acquisition Firm (SPAC), Pershing Square Tontine (SNEEZE:PSTH), continues to move higher. In fact, the PSTH stock popped as high as $ 33 per share. Stock last week. It was a good bump compared to the previous trading range in the high $ 20s.

The PSTH stock has settled around the $ 30 mark. It’s pretty impressive. Remember that Ackman debuted Pershing Square Tontine at around $ 20 per tonne. Shares.

So the stock is 50% higher than its offer price, even though we are still missing a big detail – what SPAC will actually buy.

That’s the thing that makes the PSTH warehouse so weird at this point. It is common to have SPACs pop up after they announce a deal. But it is much less common to see a SPAC take off before investors even know what the SPAC actually represents.

As such, Pershing Square Tontine is a bet on Bill Ackman’s verdict at this point.

A better alternative to PSTH storage

PSTH shares are not the only listed Bill Ackman investment vehicle out there. You have too Pershing Square Holdings (OTCMKTS:PSHZF). This is a closed fund (CEF), which owns a stake in the Pershing Square hedge fund. Because of this, the stock price closely follows Ackman’s return on investment.

Apart from tracking errors, people who buy the PSHZF stock get pretty much the same return as direct investors in Ackman’s hedge fund. Along with a particularly good 2020, Ackman has historically delivered strong returns. Despite this, PSHZF is trading at a significant discount on the value of its stake in the hedge fund.

But there’s also a cherry on top: Ackman’s hedge fund has a significant stake in Pershing Square Tontine, including warrants. So if the Pershing Square Tontine deal is a big winner, a good chunk of that goes to the hedge fund.

Meanwhile, if the Tontine deal fizzles, the broader hedge fund will still be in fine shape. To know more, I wrote one full comparative analysis of Tontine and Pershing Square Holdings back in January.

Finally, though, I should note that not all high-profile SPACs end up getting a big pop. E.g, VG acquisition (SNEEZE:VGAC) recently announced that it is buy well-known genetics play 23andMe.

The VGAC stock initially jumped from $ 14 to $ 18, but has now given most of it back as investors question 23andMe’s long-term outlook. Ackman, by searching for a large target, may find himself buying a similarly insecure business.

What can this SPAC buy?

Pershing Square Tontine has been on the hunt for a deal for a while now. There were rumors last year that Ackman would run by AirBnb (NASDAQ:ABNB). Instead, AirBnb went public solely through a traditional IPO.

Traders also speculated that Ackman would buy Bloomberg information services and media empire. There has been constant speculation that the Bloomberg business was for sale since Michael Bloomberg’s presidential run last year. However, none of that came either.

As of now, there is no clear indication of what Pershing Square Tontine can acquire. However, traders are betting that Ackman will soon announce something.

First, Ackman recently tweeted a bizarre rap music video about called SPACs “Spac Dream” recently. This song highlights many trade themes and celebrities like Dave Portnoy, buys dip and grabs SPAC warrants.

Second, Ackman is set to have Pershing Square’s annual meeting on February 18th. As such, if Ackman has an agreement, it would be logical to reveal it at the annual meeting. That would be perfect from a media buzz point of view.

The verdict

If you like Bill Ackman, I’ve got the appeal for this offer. It makes a lot of sense in this environment. We are overwhelmed by all the new SPACs. So Ackman manages to stand out from the crowd with his celebrity status and the unusually large size of Pershing Square Tontine. It all adds up to why this is a hot option.

However, it’s a bit steep to pay a premium of 50% for PSTH shares right here. Especially when you can buy into the tracking inventory for the Pershing Square hedge fund for a big discount.

Assuming you believe in Ackman, does it not make more sense to buy into his hedge fund on the cheap? Especially when the hedge fund is well positioned to get a large portion of any profits from Pershing Square Tontine.

PSTH stock will continue to be a good trading name. Look for another pop when a deal is finally announced. In the long run, however, there are likely to be better returns in Ackman’s hedge fund rather than this one-off SPAC.

At the date of publication, Ian Bezek held neither (directly or indirectly) any positions in the securities mentioned in this article.

Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $ 300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.

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