Pershing Square Tontine Holdings, Ltd. (PSTH) is a blank-check company. Another term for it is a SPAC. These are shell companies that are formed solely with the purpose of going public to raise investment capital and merge with another company.
Bill Ackman's PSTH is a SPAC that trades publicly on the New York Stock Exchange under the ticker symbol "PSTH." This particular SPAC also has warrants that are listed as PSTH.WS. What exactly are stock warrants and how do they work for PSTH?
What are stock warrants?
In general, stock warrants are options a company issues through a trading exchange that give investors the right to purchase shares at a specific price for a set time period. Warrants aren't the same as owning stock and they aren't an obligation to buy shares.
The SEC explains that with SPAC warrants, sometime after the IPO, the SPAC common stock and its warrants might start trading separately on an exchange with their own unique symbols. Therefore, it’s important for SPAC investors to know whether they’re buying units, common stock, or warrants.
In SPACs, warrants are fairly common and the terms for warrants are laid out in the SPAC IPO filing. For PSTH SPAC warrants, the warrants per unit are set at 1/9, which means that each unit is worth 1/9th of a warrant. Investors must buy in multiples of nine because fractional share buying isn't permitted for this SPAC.
Bill Ackman and PSTH
Bill Ackman is the chairman and CEO of Pershing Square Tontine Holdings, Ltd. It's a $5 billion–$7 billion blank-check company. Pershing Square Capital Management, Ackman's company, has invested in companies like Chipotle, Starbucks, Berkshire Hathaway, and Lowe’s.
PSTH SPAC warrants
The warrants for PSTH have an exercise price of $23. Once exercisable, one warrant gives the holder the right to buy one share of PSTH in the future at that $23 price. The timeline before warrants expire can vary depending on the SPAC.
According to Wolves of Investing, the PSTH SPAC IPO date was July 22, 2020. The earliest that warrants will be exercisable is 12 months after that, or July 22, 2021. This also must be at least 30 days post-merger.
When PSTH SPAC warrants expire
The PSTH SPAC warrants are structured differently than what's typical for SPACs, according to Wolves of Investing. Generally, warrants for a SPAC expire if the SPAC ends up terminating before a merger can take place.
The PSTH SPAC has some other clauses about its warrants. Management will have the right to redeem warrants if the share price is at $36 or higher for 20 out of 30 trading days. A similar clause is in place for share prices of $20 and up for 20 out of 30 trading days.
Other SPACs usually have a share price of $10 and include a clause where management can redeem warrants if the price hits or exceeds $18 per share for a certain number of trading days.
If warrants aren't redeemed early, they usually expire five years after the merger of the SPAC with a target company. Investors who purchase warrants should be aware of the expiration date because warrants can become practically worthless if they expire.