Dividends and Pershing Square in talks to buy 10% of Universal record label in largest SPAC deal

In 2020 a new vehicle for investing raised its head on Wall Street, the special purpose acquisition company or SPAC which is essentially raising money and given a blank check to the originators. This has meant most of the money invested has not been that wonderful, even though $300 billion has been raised in 2020 and 2021. If money is raised in the billions, the established money managers can not be far behind and one of the better fund managers is William Ackman. He runs a firm called Pershing Square and raised $4 billion in July 2020.

According to an article by Svea Herbst-Bayliss and Mathieu Rosemain of Reuters, the SPAC Pershing Square Tontine Holding is in talks to buy 10% of Universal Music Group that would value Universal at $40 billion (10 x $4 billion).

Typically SPACs usually aim to buy private companies and take them public as an alternative to listing shares through an IPO. Generally the process to list shares through an IPO is both time consuming and many regulatory hurdles to manage to ensure the company meets the requirements for listing, with a SPAC the time and regulatory hurdles are much less. The SPAC can buy the company and then change its name to the company if desired.

The interesting aspect to this deal is of all the companies in the world to buy, Mr. Ackman picked a company which benefits from growing streaming revenues or recurring revenues.

Linking to dividend paying companies, Mr. Ackman found a company with recurring revenues and expects to continue to generate these funds. It is a good strategy and something dividend investors know well. There is great value in constant revenues, the challenge is what to do with the cash and how the company keeps costs in line.

There are more questions than answers, till the next time – to raising questions.

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