WHEN: Today, Monday, October 2, 2023
WHERE: CNBC’s “Squawk Box”
Following is the unofficial transcript of a CNBC interview with Pershing Square Capital Management CEO Bill Ackman on CNBC’s “Squawk Box” (M-F, 6AM-9AM ET) today, Monday, October 2. Following are links to video on CNBC.com:
All references must be sourced to CNBC.
ANDREW ROSS SORKIN: Meantime, U.S. regulators approving a unique special purpose acquisition company structure from investor Bill Ackman. Instead of a SPAC, it’s being called a SPARC for special purpose acquisition rights company. Ackman will inform investors a potential deal before they decide to pledge funds and Bill Ackman amid a lot of news over the weekend about what he might want to do with this fund joins us right now. He of course is the founder and CEO of Pershing Square Capital Management, floating the possibility of maybe trying to take X formally Twitter public with Elon Musk, what’s going on?
BILL ACKMAN: Only good things.
SORKIN: Only good things. Let’s talk about this fund and let’s talk about some of the headlines you made over the weekend because this this structure was approved and one of one of the names that’s been floated, I believe by you and we talked about in the six o’clock hour was the possibility that you might want to take X public via this, this fund.
ACKMAN: Maybe we should back up a little.
SORKIN: Okay.
ACKMAN: So if you think of a typical IPO, right, you’ve got to sort of expose yourself to the world with a prospectus well before knowing whether you can raise any money, and then you’re subject to the market, and if the market’s there and the shareholders and investors like you, stars align, you raise your money. You don’t know what the price is, you don’t know how much, you don’t whether it gets done. That’s the typical deal. What we’ve done is we kind of reversed that whole process. Imagine a world in which you sit down with an investor. The investor does due diligence on your business, likes your business, likes the management, says you know what? I’ll invest a billion and a half dollars at $25 a share regardless of what the market does between the time we filed with the SEC and the time the prospectus gets approved. What do you say? I think every IPO investor would say that sounds like a pretty good deal. I said what if you need so we’ll guarantee you a billion and a half dollars, we’ll guarantee you a fixed price. And by the way, if you need more, we have a whole bunch of other investors who like us who have invested alongside us before and they’re going to get to invest at the same price. What do you say? And that’s what we call Pershing Square SPARC Holdings.
SORKIN: That’s what, that’s what this new fund effectively is—
ACKMAN: It’s not a fund.
SORKIN: It’s a structure.
ACKMAN: Call it a structure. Yes.
SORKIN: And let’s just talk about the history of this structure because it really came out of a SPAC dare I say a challenges or even a failed SPAC if you will, which was an effort to buy Universal Music, effectively blocked of sorts by the SEC, you ended up taking, you ended up still buying that stake in your fund itself, which has been, I believe a successful investment.
ACKMAN: It has been. Yes.
SORKIN: But explain what the SPAC to SPARC piece is because the SPAC piece has, you know, I think is—
ACKMAN: It’s got a bad name.
SORKIN: It’s got a bad name.
ACKAMN: Sure. So the story here is we set out to create a much better version of a SPAC, what we call Pershing Square Tontine Holdings and people liked it. And we had 12 billion of demand for a $4 billion IPOs. We picked a who’s who of investors to be our investors. Two years later, we were not able to deliver because the SEC ultimately did not approve the somewhat unusual structure of the Universal Music transaction. So what we said to them at the time was we said, look, apologies, not a great outcome for us. We’re gonna give you a ticket to a new party. We have a much better idea for how these entities should be structured.
SORKIN: But you returned all the money though?
ACKMAN: Returned all the money.
SORKIN: But you gave them, but you returned the money—
ACKMAN: And we gave them a ticket.
SORKIN: Gave them a ticket.
ACKMAN: And the ticket said, when we get this thing approved, what we’re calling SPARC, you get to be the first in line. And so we’re the approval that happened on Friday in effect enables us to distribute these rights to shareholders and they won’t trade unless and until we find a great business to buy. We negotiate a deal, we enter into a definitive agreement at a fixed price. We commit Pershing Square funds, commit, you know, say a billion dollars and let’s say the company wants to raise 5 billion, we commit a billion. We set the rights price, there’s 61 million of these rights, each one can buy two shares, so think 122 million rights, want to raise another $4 billion. We set the price at let’s say $35 a share. So the company now knows that they’re going public. They now know their price. And so the first public disclosure is we’re going public. We know the price, we know we’re raising the minimum amount of capital we need and then we file with the SEC to get the prospectus approved. We do a little roadshow and then the rights begin to trade and people can invest at the same price as us. There are no underwriting fees, and there’s none of this typical risk of an IPO.
SORKIN: So enter this idea of X so one of the things you told The Wall Street Journal over the weekend was that you would be open, “Absolutely,” you said to using this vehicle if you will to take X, Elon Musk’s formally Twitter, public.
ACKMAN: But the history here is they were writing an article about my tweets they’ve been working on for a couple of weeks. And then when they saw this filing, I think they decided to well certainly ask me the question, would we use this kind of vehicle to take X public?
SORKIN: So how interested are you in taking X public? You invested I should say in Twitter when Elon Musk bought it, correct?
ACKMAN: Yes, the Pershing Square Foundation made a very small investment relative to the size of the deal. $10 million in a $40 billion deal so—
SORKIN: And would you like to buy it?
ACKMAN: So the answer is I have a lot of respect for Musk. I think Twitter is a really important platform. I think he’s made tremendous improvements to the platform and I think it’s a unique, you know, very difficult to disrupt kind of asset and one that could grow and he’s obviously gonna pursue different lines of business. So I think it’s I think it’s quite interesting. I don’t have information on how the business is doing. I have no idea whether he has any interest in doing something.
SORKIN: Have you spoken to him about it?
ACKMAN: I have not. I have not.
SORKIN: So this is just—
ACKMAN: They asked me a question. Would you consider it? The answer is absolutely because I like the business. I like Musk, and I think it’s important.
SORKIN: He’s got a lot of debt on that company.
ACKMAN: Yes. And that’s why this structure is—
SORKIN: 13 billion.
ACKMAN: You know it would be hard today to try to do a $13 billion IPO, let’s say to pay down debt. What’s interesting here is we could commit Pershing Square $2 billion to a transaction, set the rights price of 121 million rights set it at $100 a share and announce a transaction, he knows he’s going public. He knows he’s raising 2 billion which certainly helps. And then we tell the story. And then the rights holders have a chance to decide whether to invest as long as the rights have positive value if the trading in the market for a $1. They’re all going to get exercise and the IPO raises $13 and the, I’m sorry, $13 billion and the investors are a who’s who, if you go back and look at the people we raise capital from just look at the 13F list for Pershing Square Tontine Holdings, it’s a who’s who of institutions, from family offices, as well as you know a million retail investors.
SORKIN: Musk paid $44 billion for the asset. What you think the asset’s worth today?
ACKMAN: I don’t know. I have no information.
SORKIN: I know but would you would you buy it at $22 billion? Would you want to own it if it was $10 billion, own it if it was $5 billion? What, you are a user in a sort of Peter Lynch kind of approach to investing. You know, you buy the stuff you like.
ACKMAN: The product, the product’s vastly better than it was before. The cost structure is vastly improved versus what it was before obviously. I think the rate of innovation in terms of new features, the pace of innovation is much better than it was before I think where they’ve been harmed is they’ve lost a lot of advertisers. And I think the advertisers are likely to return because this is not, I’ve actually bought stuff that I’ve seen advertised on Twitter, so it actually sort of works. It’s also an audience that’s quite difficult to reach. I don’t really watch TV, you know, I read perhaps you know, FT journal, those kinds of newspapers, but it’s a very unique way to reach a lot of I think very good users.
SORKIN: And if not—
ACKMAN: From an advertiser’s perspective.
SORKIN: And if not X, you would buy a classic sort of businesses owned by private equity firm.
ACKMAN: I think that’s the easiest transaction to do. Right. A lot of private equity firms today, they would love to, you know, ring the bell if you will return capital to their investors show progress on a business on a business outcome. And so we’re kind of a very simple solution, but they don’t want to file a prospectus, get the employees all excited, distracted, and then the deal not happen. And also, the other problem with private equity is so fine, you sell 10% of the business, and then they got a lot more stock to sell over time. We could buy an entire company, right, we can buy 100% of a business with this structure.
SORKIN: Let me ask you this. And I mentioned in the six o’clock hour, one of the benefits of this structure, one of the benefits of the SPAC structure was you don’t have to go through the rigmarole. I don’t know we know that rigamarole is real word, but the rigamarole of an IPO process, but there’s some value to the rigamarole—
ACKMAN: No, no, it’s not true.
SORKIN: Of that process, in so far and I think we look now at a lot of the transactions, the SPAC deals that went through and say, you know what, they didn’t, they didn’t get the sort of spotlight that they should have where people could actually see what was really happening. No? Why do you think that all of these SPACs were such such failures?
ACKMAN: Because the deal was such a terrible deal for the counterparty, for the company, that only the worst of companies would transact with the SPAC. And what’s different here is that our, a SPARC transaction will have a pure common stock capital structure. So no shareholder warrants, won’t have a five and a half percent underwriting fee, no frictional costs of a SPAC so the the quality of the companies that we can transact with is much higher, and also the fact that they get, you know, they get us as an anchor investor. So, if you think about a typical IPO, they call the Goldman Sachs’ of the world, they call them underwriters. But they’re not really underwriters. They’re not committing to buy stock at a fixed price. What we’re doing here is we’re an investor who takes an anchor position in a company after doing inside due diligence and then offers the opportunity to the public. That’s a better structure for protecting the public.
SORKIN: What about the incentive structure because part of the problem with the SPAC structure was you had these quote sponsors, people call that promoters, and they were collecting oftentimes 20% of the company. They could get out of the stock oftentimes, if the stock traded high enough, within six months to a year yet they were relying on projections that were based on four and five years out, but they didn’t have to hold for that kind of period. What about you?
ACKMAN: The opposite of what we’re gonna do here. So one we’re gonna buy something we want to own basically forever so we’re looking for a forever investment that’s basically our approach today we want something we can own for a decade. That’s number one. Number two, we’re gonna invest a billion dollars, a billion and a half dollars. We’ll be the largest shareholder in the company. We’ll be the if you will, the anchor. We’re likely to join the board of the business. So we’re not this is not a trade where we get people excited about something and we dump it, right? And we’re paying the same price for those shares as the other shareholders. So it’s a very, very different outcome. The only differential security we receive is a warrant on 5% of the company, only if the people who we distribute the rights to exercise their rights, so our compensation if you will—
SORKIN: You’re going to get 5% of the company just to be clear.
ACKMAN: 20% out of the money. We paid $35 million for that instrument, but it’s contingent on the rights holders’ exercising and so if none of them exercise, we don’t get it. Zero. So we’re just we’re just buying common stock in the company at a billion, you know—
SORKIN: How much do you worry as somebody who’s now on Twitter and who has a following and we talk about meme stocks all the time, and this was true of the SPAC phenomena people loved you during this during Tontine during your SPAC, how much do you worry about investors who, frankly, you’ve just had a lot of complicated stuff that most people frankly should go read a prospectus or the documentation of what this looks like before they invest, do you think that they even understand?
ACKMAN: I think they’ll have plenty of time to understand. I mean the simplicity of this is no shareholder warrants. So it’s common stock, they understand that, right. They understand that we’re gonna buy a billion dollars at $25 a share. We’re gonna do that in front of them, right. Time will pass, hold on, the it’s going to receive the same scrutiny as any IPO. We have to file an IPO prospectus with the company that has to get approved, go effective by the SEC. It’s got to get approved by the SEC. Then the rights trade for 20 days. So people can say, oh, that the rights are trading for a penny. This is a bad deal. If the rights are trading for $3, $4 a share people say okay, the market likes this transaction. So there’s a lot more information here for the retail investor than there is typically.
SORKIN: I want to pivot before before we leave you where you leave us which is I want to talk about interest rates and where you think we really are headed because you’ve made some provocative statements about where you think the 10 Year is ultimately going to go? And where this all headed? I’m curious what you think that ultimately means to equities we were just speaking downstairs about mortgage rates, and whether they stay at the 7, 8% level and, and what that, you know, do things start to break as a result.
ACKMAN: Sure. So two things. One, I think the Fed is probably done. I think the economy is starting to slow. I think the level of real interest rates is high enough to slow things down. You know high mortgage rates, high car rates, high credit card rates, they’re starting to really have an impact on the economy. The economy is still solid, but it’s definitely weakening, seeing lots of evidence of weakening in the economy. What are, you know, our belief when, you know, 2-Year Treasury was 12 basis points was going to five, right? We no longer have that bet on. The only bet, if you will, it’s really a hedge at this point is that long term rates, the 30-Year Treasury is likely to go higher, you know, go into the mid fives as our expectation or what happens there. I don’t know that the 10-Year has to go meaningfully above 5% because you’re seeing some weakness in the economy. But on a long-term basis, we think structural inflation is going to persistently higher in a world like that, you know, government shouldn’t be able to borrow at four and three quarters fixed for 30 years. So I think long term rates go higher. I don’t think mortgage rates, the spread between the 10-Year Treasury and mortgage rates is about the widest it’s been. So you can see a world in which the 10-Year Treasury goes up and mortgage rates don’t go meaningfully higher than where they are now. A lot of that has to do with—
SORKIN: And when does that break the consumer though? At some point these, you know, 7 and 10-Year arms and what’s going on are going to roll over, people can have some problems, no? And then what happens to the regional banks? I mean this is, this is—
ACKMAN: Well, most people, a big percentage of the country has fortunately fixed rate mortgages that, you know, three and a half, 4% or less. A lot of businesses a lot of the big companies have fixed rate debt that’s extended for a relatively long period of time. So I think the yes, there are people who borrowed short term at a low fixed rate and are getting repriced and you look at a lot of commercial real estate investors they’re gonna have a very challenging period. I think that’s really the big threat, very targeted threat that rates will have.
SORKIN: Two other quick issues. Presidential election, you’ve been talking a lot about how you want Jamie Dimon to run. Jamie’s not going to run I don’t think but—
ACKMAN: I’ve given up on that.
SORKIN: You’ve given up on that.
ACKMAN: Yes.
SORKIN: But you, you’re giving money to Vivek Ramaswamy.
ACKMAN: I did.
SORKIN: Chris Christie.
ACKMAN: I did.
SORKIN: You giving money to Biden?
ACKMAN: No.
SORKIN: No. So what do you want to happen here?
ACKMAN: I want an alternative to the choices we have now and I think the country would be very well served—
SORKIN: With the choices that we that you don’t want any of the people who—
ACKMAN: No, no I think a Biden Trump election is not good for the country. I’d love for there to be a candidate the entire country can get behind as opposed to this, you know, two-sided world that we live in.
SORKIN: What do you like the most? Of all the, you know the options.
ACKMAN: Well, I don’t know them all.
SORKIN: But I mean, you know of the options.
ACKMAN: I’ve not met Nikki Haley, I’m gonna have an opportunity to do that soon. I met with Chris Christie recently, and I was actually really impressed. A real guy super solid governor did I think a very good job of dealing with the hand he was dealt in New Jersey was able to get elected in a democratic state. I could see him as someone to bring the country together. Does he have the widespread appeal he needs in order to rise? I think, you know, an early test will be New Hampshire.
SORKIN: Final question. You met with Zelenskyy?
ACKMAN: Yes.
SORKIN: I think you’re a supporter of Ukraine.
ACKMAN: Yeah, yes. Big supporter.
SORKIN: Would you have liked the U.S. government this weekend to have funded Ukraine and by the way, how does that square with Elon Musk who I know has a very different opinion of Zelenskyy I think.
ACKMAN: I don’t know that Musk has a negative opinion as Zelenskyy. I think, I think his view is that a forever war in Ukraine is not good for America. It is not good for Ukraine, not good for anyone. I agree with that. I’d like to see a world in which that we can, that war ends. It’s a black swan risk for the world. There are thousands of young people and innocent people dying. I’d like to see a world where that ends sooner rather than later.
SORKIN: Okay, Bill Ackman touching so many different subjects.
ACKMAN: Thank you.
SORKIN: I hope to follow the progress of the SPARC.
ACKMAN: SPARC will be good.
SORKIN: Let me know if there’s a spark or spark of interest from Elon Musk and others.
ACKMAN: Where there’s a spark hopefully there won’t be a fire.
