One big question not answered is: "At what point in the process do PSTH shareholders get the opportunity to redeem shares for $20 before they lose that right forever?" Is this before the UMG spin-off? If so, how will it be arranged as there will not be a vote prior to the UMG spin-off? In fact, there doesn't seem to be any part of the process that requires a vote. If anyone has an opinion to share it would be appreciated. Seems like a bait-and-switch to the original SPAC investors as many/all of the regular SPAC expectations are being broken.
"The Warrant Exchange Offer would close prior to the record date for PSTH’s distribution of UMG shares such that warrantholders who participate in the exchange offer and continue to hold their PSTH shares will receive UMG Shares in the Distribution."
So if you do the cashless redemption of existing outstanding warrants, you'll get PSTH shares in time to be entitled to both UMG and Remainco. PSTH is a year old and the 48 mo/$22 cell in the redemption table in the S1 is 0.2433. At $22/share, that makes a warrant worth $5.35.
Also
"One SPAR will be distributed for each share of PSTH Class A common stock outstanding on the record date shortly following the completion of the Redemption Tender Offer and Warrant Exchange Offer."
and
"PSTH will distribute Distributable Tontine Redeemable Warrants to remaining shareholders after completion of the Redemption Tender Offer and Warrant Exchange Offer. PSTH will make that distribution to shareholders of record after completion of the Redemption Tender Offer, but before completion of the Warrant Exchange Offer. This means that shares that are redeemed in the Redemption Tender Offer or that are issued in the Warrant Exchange Offer will not receive the Distributable Tontine Redeemable Warrants."
So ordering is:
1. Share Redemption Tender Offer ($20 refund)
2. Tontine Record Date
3. Outstanding Warrant Redemption
4. Distribution of Tontine Warrants
5. Distribution of UMG shares???
6. Distribution of SPARs???
I have ??? on #5 and #6 because it states clearly that they happen after #3 (I led off with the proof of that above), but I haven't found clarity on whether they happen after #4. If so, it is conceivable you'd get the tontine warrants in time to exercise them for shares and then get more UMG, more Remainco, and more SPARs.
If 5/6 really do happen after 4, then the tontine warrants could end up offering leverage into UMG/Remainco/SPARs. Like, if half the shares redeem, then remaining shares get 4/9 of a tontine warrant. 4/9 * 0.2433 = 0.1081 PSTH shares. So 1 share pre-redemption would be worth 1.1081 shares post, in time for UMG distribution. That means 1 share has about $22 of UMG/Remainco value in that scenario. At the current price, you get the 1.1081 SPARs for free. Of course, who knows if anyone will redeem their shares for $20 at this point.
Also, the SPARC structure sounds really elegant, if it works out. Bill gets unlimited time to hunt, nobody is buying options or complaining about opportunity cost, and PSH owns all the equity so has full voting control over an eventual deal.
"No assurance can be given that SPARC will be ultimately effectuated on the above outlined terms or at all."
Sounds like SEC and NYSE still need to bless the SPARC idea.
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I do wonder how PSTH options are going to be adjusted for this. I'm guessing they miss on all the fun and just get a strike adjustment on Remainco. I hope that's not true, because I definitely had some Jan 22 $20C in the mix that got cut in half today.
One question on the warrant exchange offer: I read the prospectus as saying that the warrants have a five year expiration that starts after the "initial business combination". So should your 48 months number really be 60 as they have not done the initial business combination yet? Theoretically, the warrants would still have a 5 year life? I know that would not change the ratio much, just wanted to see if I was reading the prospectus right!
I think the tontine warrants have five years from the business combination (because you don't get them until the combination occurs). The redeemable warrants (the ones trading now) expire five years from the IPO, which was one year ago.
I don’t think we know. All we know right now is Vivendi has a shareholder vote on 6/22 to approve the deal and the spin of UMG. If that passes, they plan to list “sometime in Q3” and PSTH holders won’t get UMG until after that.
But, you options should be adjusted to entitle you to the basket of securities if all at happens before they expire.
The OCC will issue a ruling on how the options will be adjusted. Last I saw, someone called and they are "working on it". It likely won't get issued before the 6/22 vote and official DA, though. You can keep an eye on the "information memos" on theocc.com and find the rulings.
Great question on options. Note that the Euronext exchange does have options and 1 call = 100 shares. Therefore, it seems to me, PSTH option holders should get adjusted options on the Euronext exchange.
Spent some time reading about how options contracts are adjusted by corporate events. It seems that in the event of a stock/asset distribution (spin-off, etc), the contract is modified to include the distributed assets. So I guess calls on PSTH will now entitle you to 100 shares of Remainco, X shares of UMG (X = 1475/UMG share price that PSTH pays), and 100 SPARs. The intrinsic of the option would be the sum-of-parts of those things.
That could be pretty great, especially for LEAPs. Also maybe an arbitrage opportunity to keep an eye on if the adjusted options trade wildly out of sync with the three underlying securities. Guessing the market is going to be thin on them though... a lot of retail apps won't even let people buy adjusted options.
Since PSTH is largely a US shareholder base and WMG trades in the US, I would think the UMG shares received will establish an ADR here in the US. That makes the most sense to me. I think shareholders would hate dealing with their broker receiving intl shares.
How are they going to distribute the UMG stock? If it's a dividend, what are the tax consequences? BTW, the 2/9 warrants will be a dividend. Also how will ex-dividend work? This deal keeps getting stranger as you try to figure out how it will unfold.
Just to clarify, 10% UMG shares PSTH is getting are from 20% UMG shares which Vivendi is supposed to hold post IPO. 60% UMG shares distrubuted for Vivendi shareholders will stay the same.
That's what Reuter reported in May when vivendi said the group is analysing the soppotunity of selling 10% of UMG shares to an American investor".
And it makes sense what's written in the p26 — VIVENDI — NOTICE OF MEETING 2021 —
"Vivendi would retain 20% of UMG’s share capital and voting rights. However, Vivendi continues to receive expressions of interest from potential investors in UMG and may sell some of its UMG shares to a strategic partner either before or after the payment of the Distribution in Kind. Nevertheless, Vivendi intends to retain at least 10% of UMG’s share capital over the long term.
By the way, I've been following your blog since you listed UMG as No.3 target. Great articles.
9 bullet points you made are most accurate and yet simplest explanations of the deal I've ever read. Including the 28 pages report Bill Ackman tweeted "worth a read". Thank you for your work.
I'm interested to know whether it is safe to sell calls against shares. Because PSTH distributes UMG as a dividend (I believe) does this mean selling calls does not cap the upside on my UMG preIPO shares?
I wonder if the iv crush is temporary. I bought back my covered calls during the day expecting more volatility in the coming weeks.
I rolled half my sold Jan23 x45s to the Jan22 x45s on Friday at about a 0.70 spread and bought some additional common which I haven’t sold calls against, yet. The Friday IV crush on the Jan23s basically protected the lions share of the common decline. Looking at the screen, it really looks like a lot of the sell off in common related to retailers abandoning all of the absurdly priced leaps (and MMs correspondingly selling out of the common). Looking to add to common Monday on a decline or stagnation OR sell options on my new uncovered shares on a bounce. Crazy times
One big question not answered is: "At what point in the process do PSTH shareholders get the opportunity to redeem shares for $20 before they lose that right forever?" Is this before the UMG spin-off? If so, how will it be arranged as there will not be a vote prior to the UMG spin-off? In fact, there doesn't seem to be any part of the process that requires a vote. If anyone has an opinion to share it would be appreciated. Seems like a bait-and-switch to the original SPAC investors as many/all of the regular SPAC expectations are being broken.
"The Warrant Exchange Offer would close prior to the record date for PSTH’s distribution of UMG shares such that warrantholders who participate in the exchange offer and continue to hold their PSTH shares will receive UMG Shares in the Distribution."
So if you do the cashless redemption of existing outstanding warrants, you'll get PSTH shares in time to be entitled to both UMG and Remainco. PSTH is a year old and the 48 mo/$22 cell in the redemption table in the S1 is 0.2433. At $22/share, that makes a warrant worth $5.35.
Also
"One SPAR will be distributed for each share of PSTH Class A common stock outstanding on the record date shortly following the completion of the Redemption Tender Offer and Warrant Exchange Offer."
and
"PSTH will distribute Distributable Tontine Redeemable Warrants to remaining shareholders after completion of the Redemption Tender Offer and Warrant Exchange Offer. PSTH will make that distribution to shareholders of record after completion of the Redemption Tender Offer, but before completion of the Warrant Exchange Offer. This means that shares that are redeemed in the Redemption Tender Offer or that are issued in the Warrant Exchange Offer will not receive the Distributable Tontine Redeemable Warrants."
So ordering is:
1. Share Redemption Tender Offer ($20 refund)
2. Tontine Record Date
3. Outstanding Warrant Redemption
4. Distribution of Tontine Warrants
5. Distribution of UMG shares???
6. Distribution of SPARs???
I have ??? on #5 and #6 because it states clearly that they happen after #3 (I led off with the proof of that above), but I haven't found clarity on whether they happen after #4. If so, it is conceivable you'd get the tontine warrants in time to exercise them for shares and then get more UMG, more Remainco, and more SPARs.
If 5/6 really do happen after 4, then the tontine warrants could end up offering leverage into UMG/Remainco/SPARs. Like, if half the shares redeem, then remaining shares get 4/9 of a tontine warrant. 4/9 * 0.2433 = 0.1081 PSTH shares. So 1 share pre-redemption would be worth 1.1081 shares post, in time for UMG distribution. That means 1 share has about $22 of UMG/Remainco value in that scenario. At the current price, you get the 1.1081 SPARs for free. Of course, who knows if anyone will redeem their shares for $20 at this point.
Also, the SPARC structure sounds really elegant, if it works out. Bill gets unlimited time to hunt, nobody is buying options or complaining about opportunity cost, and PSH owns all the equity so has full voting control over an eventual deal.
"No assurance can be given that SPARC will be ultimately effectuated on the above outlined terms or at all."
Sounds like SEC and NYSE still need to bless the SPARC idea.
---
I do wonder how PSTH options are going to be adjusted for this. I'm guessing they miss on all the fun and just get a strike adjustment on Remainco. I hope that's not true, because I definitely had some Jan 22 $20C in the mix that got cut in half today.
As an aside, wow did the warrant holders get absolutely butchered by this deal.
One question on the warrant exchange offer: I read the prospectus as saying that the warrants have a five year expiration that starts after the "initial business combination". So should your 48 months number really be 60 as they have not done the initial business combination yet? Theoretically, the warrants would still have a 5 year life? I know that would not change the ratio much, just wanted to see if I was reading the prospectus right!
I think the tontine warrants have five years from the business combination (because you don't get them until the combination occurs). The redeemable warrants (the ones trading now) expire five years from the IPO, which was one year ago.
When are the dates for this to happen. I have September $20 calls, that fell massively on Friday due to both the stock price falling and IV crush...
Do I take the loss or exercise them early? Like what are the dates to earn the UMG spin-off and SPARC issue?
@Andrew or anyone please advise
I don’t think we know. All we know right now is Vivendi has a shareholder vote on 6/22 to approve the deal and the spin of UMG. If that passes, they plan to list “sometime in Q3” and PSTH holders won’t get UMG until after that.
But, you options should be adjusted to entitle you to the basket of securities if all at happens before they expire.
Thanks, Would The adjusted options would not give me the sparc or spin off shares? Or options in UMG?
I guess I'm trying to figure out if its worth selling the options at a loss.
And then just buying PSTH instead.
Or exercising the options.
Any idea?
The OCC will issue a ruling on how the options will be adjusted. Last I saw, someone called and they are "working on it". It likely won't get issued before the 6/22 vote and official DA, though. You can keep an eye on the "information memos" on theocc.com and find the rulings.
Great question on options. Note that the Euronext exchange does have options and 1 call = 100 shares. Therefore, it seems to me, PSTH option holders should get adjusted options on the Euronext exchange.
Spent some time reading about how options contracts are adjusted by corporate events. It seems that in the event of a stock/asset distribution (spin-off, etc), the contract is modified to include the distributed assets. So I guess calls on PSTH will now entitle you to 100 shares of Remainco, X shares of UMG (X = 1475/UMG share price that PSTH pays), and 100 SPARs. The intrinsic of the option would be the sum-of-parts of those things.
That could be pretty great, especially for LEAPs. Also maybe an arbitrage opportunity to keep an eye on if the adjusted options trade wildly out of sync with the three underlying securities. Guessing the market is going to be thin on them though... a lot of retail apps won't even let people buy adjusted options.
Since PSTH is largely a US shareholder base and WMG trades in the US, I would think the UMG shares received will establish an ADR here in the US. That makes the most sense to me. I think shareholders would hate dealing with their broker receiving intl shares.
with the cash shell, maybe he will start buying up the listed PSH LN shares that trade at a c. 30% discount..
How are they going to distribute the UMG stock? If it's a dividend, what are the tax consequences? BTW, the 2/9 warrants will be a dividend. Also how will ex-dividend work? This deal keeps getting stranger as you try to figure out how it will unfold.
Just to clarify, 10% UMG shares PSTH is getting are from 20% UMG shares which Vivendi is supposed to hold post IPO. 60% UMG shares distrubuted for Vivendi shareholders will stay the same.
That's what Reuter reported in May when vivendi said the group is analysing the soppotunity of selling 10% of UMG shares to an American investor".
And it makes sense what's written in the p26 — VIVENDI — NOTICE OF MEETING 2021 —
"Vivendi would retain 20% of UMG’s share capital and voting rights. However, Vivendi continues to receive expressions of interest from potential investors in UMG and may sell some of its UMG shares to a strategic partner either before or after the payment of the Distribution in Kind. Nevertheless, Vivendi intends to retain at least 10% of UMG’s share capital over the long term.
By the way, I've been following your blog since you listed UMG as No.3 target. Great articles.
9 bullet points you made are most accurate and yet simplest explanations of the deal I've ever read. Including the 28 pages report Bill Ackman tweeted "worth a read". Thank you for your work.
thank you!
I'm interested to know whether it is safe to sell calls against shares. Because PSTH distributes UMG as a dividend (I believe) does this mean selling calls does not cap the upside on my UMG preIPO shares?
I wonder if the iv crush is temporary. I bought back my covered calls during the day expecting more volatility in the coming weeks.
I rolled half my sold Jan23 x45s to the Jan22 x45s on Friday at about a 0.70 spread and bought some additional common which I haven’t sold calls against, yet. The Friday IV crush on the Jan23s basically protected the lions share of the common decline. Looking at the screen, it really looks like a lot of the sell off in common related to retailers abandoning all of the absurdly priced leaps (and MMs correspondingly selling out of the common). Looking to add to common Monday on a decline or stagnation OR sell options on my new uncovered shares on a bounce. Crazy times
I wonder how they will navigate the call options. Complex indeed.