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Digital dollar could push more people into bitcoin, fund manager says

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A digital dollar won’t doom bitcoin, according to two cryptocurrency fund managers.

As central banks around the world consider digitizing their fiat currencies, the trend could actually push more investors into crypto, Grayscale’s Michael Sonnenshein and Osprey Funds’ Greg King told CNBC this week.

“That will not displace or, if anything, take market share or compete with decentralized currencies like bitcoin,” Sonnenshein, the CEO of Grayscale, said in a Monday interview on CNBC’s “ETF Edge.”

“I think it all trends towards the digitization of money and something that investors and just your average person … who may not be in the investment market can glom onto as well,” Sonnenshein said.

Grayscale runs the largest bitcoin-based fund in the world, the Grayscale Bitcoin Trust (GBTC), with over $24 billion in assets under management.

While bitcoin has yet to establish itself broadly as a payment mechanism, its role as a store of value may only strengthen with the introduction of government-backed digital currencies, said King, the founder and CEO of Osprey, another bitcoin fund provider.

“Imagine the world’s fiat currencies are digitized. I actually think that pushes more people into something like a bitcoin because, frankly, that would give governments even more control than they already have around their money supply, and a lot of people get into bitcoin for concerns about that type of control,” he said in the same “ETF Edge” interview.

In addition to the Osprey Bitcoin Trust (OBTC), King’s firm also runs the Osprey Algorand Trust, based on a technology that supports numerous central bank digital currency projects.

With global adoption picking up, bitcoin appears to have a strong year ahead of it, both CEOs said.

“I am as encouraged as I’ve ever been by who’s participating in the ecosystem and the extent to which they’re participating in the asset class,” Sonnenshein said. “What that ultimately means for the price remains to be seen, but I think the institutionalization of this asset class has arrived and it’s here to stay.”

King expected what he saw as a “bull market” in bitcoin to persist.

“We think it’s going to be higher,” King said. “I would say it breaks decisively upward through 40,000, then it’s going to keep going. If it breaks to the downside, we could be in for some trouble. My view is that it’s bullish. But we take the mid to long-term view anyway, so, this represents a good buying opportunity in my book.”

Bitcoin traded nearly 2% higher on Friday.

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A year later, tech companies’ calls to regulate facial recognition met with little progress

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People protest in the street outside a protest to defund the police in a place they are calling the “City Hall Autonomous Zone” in support of “Black Lives Matter” in the Manhattan borough of New York City, New York, U.S., June 30, 2020.

Carlo Allegri | Reuters

In June of last year, following pressure from civil rights advocates and national protests sparked by the murder of George Floyd, three of the biggest names in facial recognition technology self-imposed restrictions on their sale to police.

But after a year of public discussions over the state of policing in America, the use of facial recognition technology to surveil the public, like many other policing practices, have mostly yet to be reined in.

That’s left companies like Amazon and Microsoft, who enacted moratoriums to give Congress time to come up with fair rules of the road, in limbo. IBM, by contrast, said it would exit the business entirely.

In the year since these tech companies pressed pause on facial recognition, lawmakers are still grappling with how to properly regulate the technology at the state and federal level. A coalition of Democrats have pressed for a pause on the government’s use of the technology entirely until they can come up with better rules. So far, most of the action has taken place in a handful of states.

Privacy and civil liberties advocates say they view the moratoria by companies as a promising first step, but they also remain wary about other, worrisome forms of surveillance that technology companies continue to profit from.

And while Amazon and others restricted the sale of their facial recognition technology, police still seem to have used similar tools during the widespread protests around police brutality last summer, though law enforcement has not been forthcoming about its use.

The unique challenge of facial recognition

Facial recognition poses unique risks to citizens, privacy advocates say, even when compared with on-the-ground police surveillance. 

“With most of the digital surveillance, the difference isn’t that there’s more of a court oversight for that sort of activity in the analogue space, the difference is the cost,” said Albert Fox Cahn, Executive Director of the Surveillance Technology Oversight Project (STOP). While trailing someone undercover requires a huge investment of time and money, creating fake social media pages to keep tabs on people is cheap and quick, Cahn said.

Matt Mahmoudi, a researcher and advisor on artificial intelligence and human rights at Amnesty International, said another issue lies in the way facial recognition can be used without the subject’s knowledge.

“In a standard police lineup you’re well aware that you’re being lined up,” Mahmoudi said. “In the case of facial recognition, you have no idea that you’re in a virtual line up. You might at any moment be in a virtual lineup.”

The sense that facial recognition could be deployed at any time — and the lack of transparency around how law enforcement uses the technology — could chill speech and free expression, activists fear.

Facial-recognition grid

Stegerphoto | Peter Arnold | Getty Images

The potential threat of such tools is especially salient for Black and Brown people, on whom facial recognition tools have been proven to be less accurate in identifying, due in part to the fact that the algorithms tend to be trained with datasets that skew white and male.

Research has indicated that facial recognition software may contain racial and gender bias. In 2018, MIT computer scientist Joy Buolamwini and renowned AI researcher Timnit Gebru co-authored a landmark paper showing IBM and Microsoft’s facial recognition systems were significantly worse when it came to identifying darker-skinned individuals.

Additionally, studies by the American Civil Liberties Union and M.I.T. found that Amazon’s Rekognition technology misidentifies women and people of color more frequently than it does white men.

Proponents of facial recognition technology, including Amazon, have argued that it can help law enforcement track down suspected criminals and reunite missing children with families. Amazon also disputed the ACLU and M.I.T. studies, arguing that researchers used Rekognition differently than how it recommends law enforcement agencies use the software.

Rep. Bobby Rush, D-Ill., himself an activist who joined the Student Nonviolent Coordinating Committee during the Civil Rights Movement of the 1960s and co-founded the Illinois chapter of the Black Panther Party, raised concerns about the technology’s biases and supported a federal moratorium on its use.

“There’s been a generations-long, I guess you would call it, trope in the Black community that all Black people look alike,” Rush said in an interview with CNBC. “Technically, with the advent of this facial recognition technology, that trope has become a truth.”

Tech companies are still ‘monetizing surveillance’

Amazon, Microsoft and IBM have placed sweeping restrictions on their sale of facial recognition tools to police, but law enforcement agencies still have a wealth of surveillance tools at their disposal. 

Microsoft has played a large role in aiding police surveillance outside of facial recognition. The company developed the Domain Awareness System in partnership with the New York Police Department, according to the department’s site. The system is billed as a “crime-fighting and counterterrorism tool” that uses “the largest networks of cameras, license plate readers and radiological sensors in the world.” Microsoft did not comment or provide further information on the DAS.

Amazon’s smart home security subsidiary, Ring, has also faced intense scrutiny from privacy advocates over its rapidly expanding work with police. Since 2018, Ring has formed more than 2,100 partnerships with police and fire departments that offer them access to video footage recorded by its users’ internet connected cameras. Video clips are requested through Ring’s social-media-esque community safety app, called Neighbors, where users can upload and comment on recorded footage and discuss goings on in their area. 

Ring doesn’t disclose sales of its products, but in a letter to lawmakers last January, it said “there are millions of customers who have purchased a Ring device.” 

As Ring’s police partnerships have grown, privacy advocates have expressed concern that the program, and Ring’s accompanying Neighbors app, have turned residents into informants, while giving police access to footage without a warrant and with few guardrails around how they can use the material. 

Ring has argued it creates “safer, more connected communities.” Amazon in 2018 claimed that Ring’s video doorbell product reduces neighborhood burglaries by as much as 55%, though recent investigations by NBC News and CNET found there’s little evidence to support that claim.

Ring’s partnerships with public safety agencies have only grown in the year since Amazon put a pause on selling Rekognition to police. The company has announced 468 new partnerships with police departments since June 10, 2020, public records published by Ring show.

In the latest sign of how much the program has expanded, all 50 U.S. states now have police or fire departments participating in Amazon’s Ring network, according to data from the company’s active agency map.

Following Amazon’s moratorium on Rekognition and amid global protests around police violence, civil liberties and human rights groups seized on the moment to call for Ring to end its partnerships with police. At the time, the Electronic Frontier Foundation argued that Amazon’s statements of solidarity with the Black community rang hollow, given that Ring works with the police, providing them with tools that advocacy groups fear will heighten racial profiling of minorities.

Ring told CNBC in a statement that the company doesn’t tolerate racial profiling and hate speech in content shared from Ring devices and on the Neighbors app.

Privacy advocates who spoke to CNBC said they believe Ring doorbells and Rekognition raise similar concerns in that both products are adding to an increased network of police surveillance. 

“[Amazon is] clearly trying very hard to monetize surveillance technologies and to cozy up to police departments to make it profitable for themselves,” said Nathan Freed Wessler, a senior staff attorney with the ACLU’s Speech, Privacy and Technology Project. “Ring is less concerning in some fundamental ways than face recognition, but it’s really worrisome in that they are basically placing little surveillance cameras in residential neighborhoods across the country and providing police with a very efficient way to try to get access to that footage, which provides law enforcement with just a huge wealth of video of people going about their lives that they never would have had access to before.”

Police need consent to gain access to Ring camera footage. That process became more transparent as a result of an update by Ring last week, which requires police and fire departments to submit requests for user video footage via public posts in the Neighbors app. Previously, agencies could privately email users to request videos. Users can also opt out of seeing posts from public safety agencies in the Neighbors app.

Ring has said that the footage can be a valuable tool to help police investigate crimes like package theft, burglaries and trespassing. But advocates and lawmakers worry that Ring devices will lead to increased surveillance and racial profiling.   

In February, the Electronic Frontier Foundation obtained emails from the Los Angeles Police Department that showed the department requested access to Ring footage during Black Lives Matter protests last summer. The EFF called it “the first documented evidence that a police department specifically requested footage from networked home surveillance devices related to last summer’s political activity.”  

“The LAPD ‘Safe L.A. Task Force’ is asking for your help,” reads one email from LAPD Detective Gerry Chamberlain. “During the recent protests, individuals were injured & property was looted, damaged and destroyed. In an effort to identify those responsible, we are asking you to submit copies of any video(s) you may have for [redacted].”

Ring said its policies prohibit public safety agencies from submitting video requests for protests and other lawful activities. The company added that Ring requires all police requests for video in the Neighbors app to include a valid case number for active investigations, along with incident details.

Privacy and civil liberties advocates not only worry that home surveillance devices like Ring could lead to increased surveillance of protesters, but that Ring footage could be used in concert with other technologies, like facial recognition, so that police can quickly and easily identify individuals.

Law enforcement agencies aren’t prohibited from sharing Ring footage with third parties. Amazon told lawmakers in 2019 that police who download Ring footage can keep the videos forever and share them with anyone, even if the video includes no evidence of a crime, The Washington Post reported.

“Once police get that footage, if they’re in one of the many cities that does not yet ban face recognition, they can take Ring footage and then use a different company’s face recognition system to identify one person, or for that matter, anyone who walks by,” said Wessler. “There would be nothing technologically stopping them from running every face through the system to try to identify people.”

For its part, Ring said last August that it doesn’t use facial recognition technology in any of its devices or services and wouldn’t sell or offer the technology to law enforcement.

Facial recognition and protests

Last summer, privacy advocates warned of the dystopian ways in which protesters for racial justice could be tracked and identified by police. Articles about how to disguise faces with makeup and masks and secure smartphones from sending out detailed location information bounced around progressive circles. 

A year later, there have been a handful of reports about how facial recognition and other surveillance technology might have been used on protesters. But activists say that the information that’s become public about protest surveillance barely scratches the surface of law enforcement capabilities — and that’s part of the problem.

In many cases, law enforcement is not made to disclose information about how they surveil citizens. It wasn’t until last June, in the midst of the protests, that the New York City legislature passed a law requiring the police department to disclose how it uses surveillance technology on the public. Through a lawsuit over the NYPD’s lack of disclosure around its use of facial recognition, STOP found that the department’s Facial Identification Section handled over 22,000 cases over three years, though little else has been revealed.

“It’s been like walking a little bit in the dark,” said Mahmoudi of Amnesty International. 

In one highly publicized case last summer, the NYPD appeared to use facial recognition to track down Black Lives Matter protester Derrick “Dwreck” Ingram, in an attempted arrest that resulted in an hours-long standoff when Ingram refused to let officers enter his apartment without a warrant. Ingram live-streamed the ordeal on social media as dozens of officers reportedly lined his block and a police helicopter flew overhead. The police eventually left and he turned himself in the next day.

In a statement to CNBC, an NYPD spokesperson said police were responding to an open complaint that Ingram had allegedly assaulted a police officer nearly two months prior during a demonstration by yelling into an officer’s ear with a megaphone. Ingram has denied the NYPD’s allegation of assault and the charges were ultimately dismissed.

Ingram said he was “taken aback” and “shaken” to learn that facial recognition tools seemed to be involved in his investigation. A spokesperson for the NYPD’s deputy commissioner of public information, Sergeant Jessica McRorie, did not comment on whether the tools were used in his case but said the NYPD “uses facial recognition as a limited investigative tool” and a match would not count as probable cause for an arrest.

Protesters kneel in front of police during a demonstration on Broadway near New York City's Union Square, June 2, 2020.

As protests over the killing of George Floyd continue, here’s how police use powerful surveillance tech to track them

Ingram’s surprise was due in part to his fluency in surveillance tools, having led sessions for other activists on how they could protect themselves from surveillance by using encrypted apps, making their social media pages private and other strategies. Still, he didn’t think he would be tracked in such a way.

Now when he educates other activists about surveillance, he understands protesters like himself could still be tracked if law enforcement so chooses. 

“If the government, if police, want to use tools to monitor us, you will be monitored,” he said. “My pushback is that we should use those same tools to prove the harm that this causes. We should be doing the research, we should be fighting with legislation and really telling stories like mine to make what happens public and really expose the system for how much of a fraud and how dangerous it truly is.”

In the nation’s capital, law enforcement revealed in court documents their use of facial recognition tools to identify a protester accused of assault. At the time, the police official who headed the area’s facial recognition program told The Washington Post the tool would not be used on peaceful protests and was only used for leads. A new Virginia law restricting facial recognition by local law enforcement will soon put an end to the facial recognition system, the Post later reported. The system had been a pilot program used across Maryland, Virginia and Washington, D.C., requiring buy-in from each region.

Rep. Anna Eshoo, D-Calif., attempted to learn more about how the federal government used surveillance tools during the racial justice protests last summer and to urge the agencies to limit their use of such tools, but said she was underwhelmed with the response from those agencies at the time.

“I received high-level responses, but very few details,” Eshoo said in an interview with CNBC. “What remains is a lot of unanswered questions.”

Representatives from the agencies to whom Eshoo wrote — the Federal Bureau of Investigation, Drug Enforcement Administration, National Guard and Customs and Border Protection — either did not respond or declined to comment on their responses or use of facial recognition tools on protests.

Reining in facial recognition technology

Momentum for facial recognition laws has seemed to wax and wane over the past year and a half. Prior to the pandemic, several privacy advocates told CNBC they sensed progress on such regulations. 

But the public health crisis reset priorities and possibly even reshaped how some lawmakers and citizens thought about surveillance technologies. Soon, government agencies were discussing how to implement contact tracing on Americans’ smartphones and the widespread use of masks lent some comfort to concerns about technology that could identify their faces.

The social movement following the murder of Floyd by police renewed fears around facial recognition technology and specifically around how law enforcement might use it to surveil protesters. Privacy advocates and progressive lawmakers warned of a chilling effect on speech and free expression should such surveillance go unchecked. 

Lawmakers like Eshoo and Rush, sent a flurry of letters to law enforcement agencies asking about how they surveilled protests and signed onto new bills like the Facial Recognition and Biometric Technology Moratorium Act. That bill would pause the use of such technologies by federal agencies or officials without permission by Congress.

In an interview with CNBC, Eshoo emphasized that the moratorium was just that — not an outright ban, but a chance for Congress to place stronger guardrails on the use of the product.

“The goal in this is that the technology be used responsibly,” she said. “It can be a very useful and fair tool but we don’t have that now.”

But, Eshoo said, things haven’t moved along as quickly as she’d like.

“I’m not happy about where we are because I don’t think the needle has moved at all,” she said.

Where there has been some change is at the state and local level, where legislatures in Sommerville, Mass., San Francisco and Oakland, Calif. have opted to ban the use of facial recognition technology by their city agencies. California now has in place a three year moratorium on the use of facial recognition technology in police body cameras. Last year, lawmakers in Portland, Ore. passed one of the broadest bans on the technology and Washington state legislators opted to require more guardrails and transparency around the government use of the technology.

It could take more of these laws for Congress to finally take action, just as the rise of state digital privacy laws have added urgency for a federal standard (though lawmakers have yet to coalesce around a single bill in that case either).

Still, many continue to call for a permanent ban of law enforcement use of the tools and for federal regulation. 

“While there’s lots of things happening at the state and local level that are incredibly important, we have to push our federal government to actually be able to pass legislation,” said Arisha Hatch, chief of campaigns at Color of Change.

Privacy advocates also remain wary of industry-supported legislation as tech companies such as Amazon and Microsoft have built up heavy lobbying presences at state capitals across the U.S. to help craft facial recognition bills. 

Microsoft CEO Satya Nadella (L) and Amazon CEO Jeff Bezos visit before a meeting of the White House American Technology Council in the State Dining Room of the White House June 19, 2017 in Washington, DC.

Chip Somodevilla | Getty Images

The concern is that technology companies will push for state laws that, in effect, allow them to continue selling and profiting from facial recognition with few guardrails. 

Advocates point to Washington state’s recently passed facial recognition law, which was sponsored by a state senator employed by Microsoft, as a weak attempt at regulating the technology. Versions of Washington’s law have since been introduced in several states including California, Maryland, South Dakota and Idaho.

Groups such as the American Civil Liberties Union argued the bill should have temporarily banned face surveillance until the public can decide if and how the technology should be used. The ACLU also took issue with the fact that, under the Washington law, it’s legal for government agencies to use facial recognition to deny citizens access to essential services such as “housing, health care, food and water,” as long as those decisions undergo “loosely defined ‘meaningful human review,'” the group said.  

At the federal level, tech giants like Amazon, IBM, Microsoft and Google have all voiced support for establishing rules governing facial recognition. But privacy advocates worry companies are calling for weaker federal regulation that, if passed, could end up preempting stronger state laws. 

“Any federal law that is less than a total ban on police use of facial recognition technology has to have a non-preemption provision,” meaning that the federal law wouldn’t supercede any state laws that are potentially more restrictive of facial recognition technology, said the ACLU’s Wessler. 

Wessler added that any federal facial recognition law must give individuals the right to sue entities, such as police departments, that violate the law.

“Those are the two things that Amazon and Microsoft and the other companies want to avoid,” Wessler said. “They want a weak law that basically gives them the cover of saying, ‘We’re now a safe, regulated space, so don’t worry about it.'”

While it could be a while until federal legislation reining in the technology enters the books, decisions by the private sector to place limits on the use of their products — even if incomplete — could be helpful. Several privacy advocates critical of the technology and companies that sell it agreed that any limits on the use of the tool are significant.

“While it is great that Amazon put a pause and all of the other companies put a pause, people are still developing this and they are even still developing this,” said Beryl Lipton, investigative researcher at the Electronic Frontier Foundation. 

There is little transparency into how facial recognition software developed by big technology companies is being used by police. For example, Amazon hasn’t disclosed the law enforcement agencies that use Rekognition or how many use the technology. Additionally, when it announced its one-year moratorium on facial recognition sales to police, the company declined to say whether the ban applies to federal law enforcement agencies such as Immigrations and Customs Enforcement, which was reportedly pitched the technology in 2018.

Large consumer brands like Amazon aren’t the only ones developing this technology or considering integrating it into their products. Lesser-known companies like facial recognition start-up Clearview AI have only begun to enter the public consciousness for their work with law enforcement. Rank One Computing, another company that supplies facial recognition technology to police, made headlines last year after its face matching service incorrectly matched a Detroit man’s license photo to surveillance video of someone shoplifting, leading to the first known wrongful arrest in the U.S. based on the technology.

That means it can be even more impactful when a company that directly deals with law enforcement or relies significantly on the sector’s business limits the use of facial recognition. Police body camera manufacturer Axon said in 2019 it would not use facial recognition technology for the time being after an independent research board it solicited for advice recommended it avoid the technology due largely to ethical considerations. Lipton said that move felt like “meaningful action.”

WATCH: Concern is growing over police use of facial recognition

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Here’s what investors can expect from Bill Ackman’s Universal Music SPAC deal

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Bill Ackman, founder and CEO of Pershing Square Capital Management.

Adam Jeffery | CNBC

Company: Pershing Square Tontine Holdings, Ltd. (PSTH)

Business: Pershing Square Tontine Holdings is a special purpose acquisition company (“SPAC”). The firm does not have significant operations. It intends to effect a merger, capital stock exchange, asset acquisition, stock purchase, reorganization, or similar business combination with one or more businesses. The company was incorporated in 2020 and is based in New York.

Stock Market Value: $4.57B ($22.86 per share)

Activist: Pershing Square Capital Management

Percentage Ownership:  n/a

Average Cost: n/a

Activist Commentary: Pershing Square has an extensive and successful track record as an activist investor and has previously been involved in a very successful SPAC investment. Pershing Square served as cosponsor of Justice Holdings, with Nicolas Berggruen and Martin Franklin. Justice Holdings raised approximately $1.5 billion in its initial public offering in February of 2011 (including a $458 million investment by Pershing Square). In April of 2012, Justice Holdings purchased from 3G Capital a 29% stake in Burger King Worldwide Holdings Inc. for $1.4 billion in cash, and subsequently merged with Tim Hortons, to form Restaurant Brands International. Pershing Square remains the second-largest investor in Restaurant Brands International.

What’s Happening:

Pershing Square Tontine Holdings, Ltd. is in discussions with Vivendi S.E. to acquire 10% of the outstanding ordinary shares of Universal Music Group B.V. (“UMG”) for approximately $4 billion, representing an enterprise value of $42 billion for UMG.

Behind the Scenes:

Pershing Square has had its best success when it has invested in high quality businesses with simple, predictable, cash flow and durable and growing business lines. That is what it was looking for with this SPAC, and that is exactly what it has found. UMG is the largest owner of musical intellectual property in the world and accordingly has a very reliable licensing revenue stream. Moreover, it is not capital intensive, has a high return on capital, a strong balance sheet, excellent management team and in an industry (music subscriptions) that has been growing by 25% annually. Moreover, a $42 billion enterprise value could be severely undervaluing the company. As the market leader in an oligopoly, with Warner Brothers as its only real competitor, there are not a lot of public comps for UMG. However, Spotify recently went public and has a $44 billion enterprise value despite having negative $205 million of EBITDA in 2020 and only projecting $500 million of EBITDA in 2023. On the other hand, UMG is estimated to have close to $2 billion of EBITDA. Moreover, as a middleman streaming company, Spotify could be viewed as a commodity with low pricing power. UMG on the other hand owns the intellectual property which is a much more valuable position in the industry. In the cable industry, companies like Spotify (i.e., Charter Communications) trade at much lower valuations than content providers (i.e., Disney). But the UMG investment is just part of the transaction. In an extremely innovative structure, PSTH shareholders will receive the following three securities:

  1. UMG Ordinary Shares, which represents approximately $14.75 per PSTH share, before accounting for any dilution from PSTH warrants. Following PSTH’s acquisition of the UMG Shares, UMG will complete its previously announced listing on Euronext Amsterdam in the third quarter of 2021. Once the listing is complete, PSTH will distribute the UMG Shares directly to PSTH’s shareholders in a transaction registered with the Securities and Exchange Commission. This is essentially a late-stage investment in UMG as a private company before it goes public.
  2. PSTH shares after the distribution of the acquired UMG shares (“PSTH Remainco”), which will have approximately $5.25 in cash per share, before accounting for any dilution from PSTH warrants. After funding the UMG purchase and related transaction expenses, PSTH Remainco will have $1.5 billion in cash and marketable securities. In addition, Pershing Square will have the right, but not the obligation, to buy approximately $1.4 billion of PSTH’s Class A common stock. This gives PSTH $2.9 billion to do another deal. Moreover, PSTH will no longer be treated as a SPAC so it will not have a time limit to find a deal. However, we expect that PSTH will find something before the end of the year. As part of their process with respect to UMG, they looked at hundreds of potential companies and likely saw many that were very attractive but too small for what they were looking for. PSTH will have the appropriate amount of capital to effectuate a minority investment in an approximate $10 billion company.
  3. One transferable five-year right per share of Pershing Square SPARC Holdings, Ltd. (“SPARC”), which is expected to trade on the New York Stock Exchange. Unlike a traditional SPAC, this Special Purpose Acquisition Rights Company does not intend to raise capital through an underwritten offering in which investors commit capital without knowing the company with which SPARC will combine. Instead, SPARC intends to issue rights to acquire common stock in SPARC for $20.00 per share to PSTH shareholders (“SPARs”) which can only be exercised after SPARC enters into a definitive agreement for its initial business combination. Assuming all SPARs are exercised, SPARC will raise $5.6 billion of cash from SPAR holders. SPARC is also expected to enter into forward purchase agreements with Pershing Square for a minimum investment of $1 billion, and up to $5 billion. This is the true innovation of PSTH’s structure. It is essentially a $6.6 billion to $10.6 billion SPAC that has five years to find a deal in which the SPAC holder does not have to put up any capital until a deal is announced. When Pershing Square initially launched PSTH, it was innovative in that it did away with founders shares and offered a tontine warrant structure. This takes it a step further by solving the urgency to find a deal inherent in other SPACs, often leading to sub-par deals and not requiring holders to lock up their capital while the company looks for a deal. Moreover, with up to $10.6 billion to do a deal, Bill Ackman has enough capital to do a deal larger than UMG and has enough time to be patient while it waits for the perfect timing for a company like Bloomberg, for example.

In sum, this transaction gives the shareholders of PSTH an interest in a soon to be public company (UMG), ownership in PSTH as the vehicle for a second, smaller acquisition that could be announced in the short-term and an opportunity to participate in a third but much larger potential acquisition over the next five years. Moreover, while it is not officially part of the deal, I would not be surprised if Bill Ackman gives PSTH shareholders a right to participate in the next SPARC he launches if or when the present SPARC consummates a transaction.

Ken Squire is the founder and president of 13D Monitor, an institutional research service on shareholder activism, and the founder and portfolio manager of the 13D Activist Fund, a mutual fund that invests in a portfolio of activist 13D investments. Pershing Square Tontine Holdings is owned in the fund.

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