Bill Ackman SPAC debacle is example of stock market bubble, investor hubris

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Opinion | The Bill Ackman SPAC debacle is the perfect example of what happens when a market bubble meets a star investor's hubris. By Prof. Erik Gordon of MichiganRoss.

Herbalife isn't the only time Ackman's words boomeranged on him. He compared Valeant Pharmaceuticals to Warren Buffett's Berkshire Hathaway and sang the praises of its CEO, Mike Pearson. and questionable accounting, Valeant crashed. Pearson was ousted. Ackman lost his investors about $4 billion.

Ackman told himself the switcheroo was okay as long as he offered to pay his investors the original offering price of the SPAC's stock. Not a great offer, because investors would lose money if they had paid a premium to buy their stock after the SPAC went public, and many did just that because they expected Ackman to find a great company to merge with the SPAC.

Ackman also was surprised that the switcheroo attracted regulatory questions about whether it was a SPAC or a much more tightly-regulated investment fund. But Ackman, being tone deaf, didn't do that. Instead, he tried a second switcheroo. Rather than go back to the original SPAC format, he decided to turn it into a"SPARC," a new type of company people hadn't invested in and that regulators haven't approved. Ackman seems desperate to not do his SPAC. Perhaps he is waking up to a fact many other investors are realizing: that SPACs aren't all they're cracked up to be.

 

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