If you are looking to invest in the coming months, it might be a good idea to look at PSTH SPAC Warrants (Pershing Square Tontine Holdings run by Bill Ackman). The warrants have the symbol PSTH.WS.
There are a few things that you should know about PSTH SPAC Warrants, as they do have quite a unique structure when compared to other SPACs. Let’s look at them.
These warrants are expected to be available around September 10, 52 days after the last S1 was filed. Once the separation happens, the units will no longer trade on the New York Stock Exchange. They will separate into Class A common stock and redeemable warrants.
Warrant Specifications
When trading, it is imperative to understand the warrants per unit. For PSTH SPAC Warrants, this is set at 1/9. This means that each unit is one-ninth of one warrant. No fractional units are available, so units must be purchased in multiples of 9 to hold a warrant.
The earliest date that the warrants will become redeemable is 12 months from the date of the SPAC IPO – this was July 22, 2020. So the absolute earliest that the warrants will become exercisable is July 22, 2021. It also has to be 30 days after the completion of a merger, so do bear that in mind!
The exercise price is $23. This means that once exercisable, each warrant will give you the right to buy one share of PSTH at $23 per share in the future, until the warrants expire. Warrant expiration can vary for different SPAC warrants. For PSTH, it is five years after a completed merger, which is fairly common among SPACs. However, there are some exceptions…
When do the warrants expire?
It’s crucial not to let warrants expire if they are in the money or have any value at all. PSTH SPAC warrants can expire in a few ways. The first is, like other SPACs, if the SPAC terminates before a merger. The next two terms are unique to PSTH SPAC warrants.
- If the shares trade $36 or more for 20 out of 30 trading days, the warrants can be redeemed by management.
- If the price per share equals or exceeds $20 for 20 out of 30 trading days, management could also redeem it.
The $36 clause is only unique to PSTH because its SPAC is double the price of other SPACs, which are normally priced at $10. Those $10 SPACs have a similar clause for $18 instead of $36.
The $20 redemption clause is truly unique to PSTH as I haven’t seen it in other SPACs before. I don’t explain it in my video well, so let me try to explain it better here. If management decides to redeem warrants after the shares equal or exceed $20 for 20 out of 30 trading days, there is a “cashless basis” table in the S1 filing under the section “Redemption of warrants when the price per share of Class A common stock equals or exceeds $20.00”. This table should give investors a good idea of how much their warrants will be worth if management decides to invoke this clause.
If you let the warrants expire, then they will pretty much become worthless ($0.01 in the $36 redemption and $0.10 in the $20 redemption). This means that it is crucial to keep an eye on warrants and make sure that you know when they expire.
In both of the above cases ($36 and $20), management will issue a 30-day notice, so warrant holders will have 30 days to make a decision before they expire. From what I’ve seen in the past, these notices are also posted on the post-merger company’s website.
If the warrants do not get redeemed early, they will expire five years after completing the merger.
Even if you’ve lost money on the warrants, selling them for cash or redeeming them for shares should be better than letting them expire worthless.
Are you thinking of buying?
I’ve put together a price prediction to help you out. I considered Social Capital Hedosophia Holdings Corp. III (NYSE: IPOC), a similarly popular SPAC run by Chamath Palihapitiya. The IPOC warrants (NYSE: IPOC WS) have traded between $2.50 – $4. Because PSTH is twice the price of IPOC, I think that PSTH warrants will trade between $5-$8 per warrant. This means that I would try to buy for under $6 per warrant to get in cheap.
I hope that this post has helped you feel a bit more prepared about PSTH SPAC warrants! Happy trading!
KEY TAKEAWAYS
- Pay attention to when your warrants expire
- Make sure they don’t expire worthless if you can sell or redeem them
- See my price prediction for where these warrants will trade
VIDEO CORRECTION AT 06:29: You don’t need to let a warrant expire worthless if it’s out-of-the-money. You can still choose to sell it at market value if you desire.
DISCLAIMER: I'm not a financial advisor. These are my opinions and provided "as-is". It is not an offer to buy or sell securities. Read the Terms and Conditions.
What do you think about PSTH warrants? Leave me a comment below. Thanks for stopping by.
If you’re brand new to SPAC stock warrants, watch this SPAC Warrants Basics for Beginners video now!
Want to learn the principles that help me to consistently beat the market? Check out my free eBook, 5 Things I Wish I Knew Before Buying My First Stock.
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Disclosure
I/we own shares of PSTH.U
Except for Wolves of Investing, I/we are not receiving any compensation from and do not have any business dealings with any companies whose stocks are discussed in this article.
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Donnie Nguyen
Donnie Nguyen is the founder and CEO of Wolves of Investing. He started investing in the stock market in the early 2000s. He follows the teachings of Peter Lynch, Warren Buffett, and other investing legends. When he's not investing or blogging, he loves spending time with his family traveling and experiencing the world.
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I don’t understand the $20 for 30 days management option. If they complete a merger 10 months after IPO and price stays above 20 then I get $0.10 per warrant cause I can not exercise my option till 12 months after IPO? Hopefully I’ve got something wrong.
The warrant has to be exercisable for management to invoke early redemption for either the $20 or the $36 clause. So they would not invoke either of these clauses unless it has already been at least 12 months and at least 30 days after a merger. Also, they will give a 30-day written notice before redeeming. I have usually seen a notice on the company website like Nikola and Virgin Galactic both did. Hope this helps. Let me know.
Right now the warrant is $9.40, let’s say I buy 5k worth of warrants, which means 531 warrants. Does that mean I have the option to buy 531 shares of stock at $23 if the SPAC merges? When SPAC’s get a merger announcement it seems to be about a 30-40% gain that day. The price of PSTH common stock is $25.30, which means my 5k can buy 197 shares. If there is a merger announcement tomorrow, that 25.30 I estimate would be at least $34.16 (35% gain) But how would the warrants react? Could I sell the warrants? Thank you!
Hello, Thomas. According to the PSTH S1 filing, the warrants are exercisable for $23.00 30 days after a merger is completed and it also has to be at least 12 months from the SPAC IPO, so at least July 2021. It’s also possible that the company can change the terms of the warrant in conjunction with a deal. It doesn’t happen often but it’s happened to 2 of my SPACs, in my favor. In your example, there’s not really a predictable pattern on how the warrants will react. I’ve seen many go up. I’ve also seen many go down after… Read more »
Donnie thank you for this exstensive analysis. Does all the above also apply to the warrants that will be issued to shareholders who hold through merger? The two warrants for every nine share. I am holding calls on psth. If psth goes up, say it merges with Stripe, would it be fair to say my calls would be priced as follows ( call value plus the value of the 2 warrants for every 9 shares ) Basically, do you think calls would sell at a premium? Maybe 20% ? I’m trying to get a game plan so I can act… Read more »
Based on my understanding, yes, the warrants issued to shareholders who hold the common stock through the merger will have the same terms as the warrants bought by shareholders before the merger. In my opinion, your plan sounds solid. Thanks for stopping by and good luck.
Donnie, you explain things well! Thanks. But I am completely new to warrants and still don’t understand how they work. Can you explain this scenario…….I own 1800 shares of PSTH and hold to a merger, knowing the July 21, ’21 and 30 day restriction. Do I own 200 warrants at the merger? How do I know this? How are they exercised at $23 (when they can) assuming the merger produced a gain in the stock value above $23? I just don’t understand the procedure! Thank you
Hi Reggie. The 1/9th warrants scenario is over and only applied to the PSTH units. Now there is a 2/9th warrants scenario that applies to the common stock. If you own 1800 shares of PSTH until a merger, you should get at least 400 warrants, according to the prospectus. I made a video about it here: https://youtu.be/SADqKosvUp4
Here is the prospectus that explains it: https://www.sec.gov/Archives/edgar/data/1811882/000119312520197776/d930055d424b4.htm
The exercise process depends on your broker. It’s best to contact your broker ahead of time and ask them what their process is to exercise a warrant. Best of luck.
So, if you are saying that when you buy a SPAC share (not a warrant) it comes with a warrant? I’m a little confused because I bought 1000 shares of KCAC and held it all the way through to the merger of QS (sold in Dec 31). I didn’t see any Warrants in my account after the merger was completed. Same with RMG when it merged with Romeo Power. Should I be calling Fidelity that I didn’t receive any warrants?
PSTH is the only SPAC I know of that has implemented this “free warrant” bonus, which is one reason PSTH is such a big deal. Hope that helps.
Hi Donnie, I bought 100 warrants @9.9 of PSTH recently in one brokerage account and also I have 65 shares in one brokerage account. Please help me if I understand your article correctly, so if the stock price trades at $36 or more for 20 out of 30 trading days should exercise my warrants into shares or sell my warrants with having profits/loss before the management exercise it. Is this clause applicable after the merger or before the merger or end of July 2021?
Hi Sravan, the clause is applicable only after the business combination and only after the warrant is exercisable, so after July 2021. Yes, you understand it correctly. I can’t legally give trading advice, but I think it’s pretty clear that most investors will not want the warrant to expire at $0.01 per share and would rather sell the warrant or exercise the warrant.
Here’s a link to the PSTH Prospectus. See page 24 for the “Redemption of Redeemable Warrants when the price per share of our Class A common stock equals or exceeds $36.00”
https://www.sec.gov/Archives/edgar/data/1811882/000119312520197776/d930055d424b4.htm
Hi Donnie, I am little confused about PSTH and hope you can help clarifying these 2 questions. when the PSTHW is exercisable, the exercise price is $23 per warrant. By paying the $23 exercise fee, 1 share of PSTHW will be converted to 1 share PSTH, right? Do I have to pay any additional money to have 1 share of PSTH? You mentioned warrant can be exercisable by management if: a. “if the shares trade $36 or more for 20 out if 30 trading days”. Do you mean $36 here is the PSTH price? b. if the price per share… Read more »
Hi Paul,
1 – Yes, pay $23 exercise price + warrant to get 1 PSTH common stock. Your broker may also charge you an exercise fee. You should contact your particular broker about specifics.
2a – Yes, $36 refers to the PSTH stock price.
2b – Wrong, $20 also refers to the PSTH stock price.
DISCLAIMER: I’m not a financial advisor. Information is provided ‘as is’ and solely for informational and entertainment purposes, not for trading purposes or advice.
Donnie, ^ when you say $23 exercise + (1) warrant, what you are saying is the (1) warrant will be relinquished and that will allow you to access the PSTH common stock share at $23, enabling you to capture additional profit if the stock is trading above that price. Correct?
The PSTH warrant itself has value and can be bought and sold through a broker. I checked the PSTH warrants today and they were $13.70. Let’s say I was able to exercise them and they were still $13.70. I’d give my broker 1 warrant plus pay $23.00 and I would get 1 common stock in return. So I would be paying $13.70 + $23.00 = $36.70 for 1 common stock. In this made-up example, if the common stock goes to trade above $36.70, then I would be able to capture additional profits. Also, keep in mind that many brokers charge… Read more »
Thanks for explaining. However, I have a question… What happens to the common stocks that you own? For example,
Let’s say I own 90 common shares of PSTH. Do the 90 shares convert to the merged business ticker plus I get the option of exercising 90*2/9 = 20 shares at $23 dollars? So I will have to fork out $460 to exercise those warrants? Giving me a total of 110 shares or merged company?
Do I have this right?
Yes, that’s correct. The 90 shares should convert to the new ticker. Plus the 90 shares will get the 2/9 bonus warrants (or more depending on how many people stick with the stock) so 20 warrants. The warrants can be sold on the market for whatever the market value of the warrant is at that time. The warrants can also be exercised by giving up the warrant plus paying the $23 exercise price to get 1 stock. So if all 20 warrants were exercised, the investor would pay the broker $460 to get 20 shares of stock.
Hi, I bought PSTH common stock within my IRA. If I hold until the merger I get 2/9 warrants. I will not have enough cash within my IRA to exercise those warrants. So can I exercise them outside of the IRA account ?
I’m not a tax advisor and this is not professional or financial advice, just my opinion… but I don’t think you can unless you want to take an early withdrawal penalty (assuming you’re not eligible for tax-free withdrawals yet). Why would you want to exercise? There’s a good chance that the warrants will have a premium to them assuming they are exercisable. Then you can just sell the warrants and buy the common stock. In my opinion, that would be way easier than trying to exercise the warrants.
Thanks for the response. Yes that makes sense, I’ll just sell the warrants.
Hello – great article. I am correct in thinking that unlike the common stock that has a 20 dollar floor if no deal goes through, there is not floor price (which I view as insurance sort of speak) to the warrant? Thank you!
Hi Andrew. Yes, you are correct. The warrant price does not have a floor price.
Hi Donnie Nguyen, I hope you are doing well. I came across your blog and I just want to say thank you for simplifying a lot of this. However there are a few things I do no understand. When a warrant is exercised where do the shares come from? At first I thought of warrants as something like an option but I’m lost now. When an option is exercised, the person who wrote/sold the option is under the obligation to provide those shares at that strike price; no shares are created or destroyed. The seller of the option either already… Read more »
Hi Max, when a warrant is exercised, the company creates a new share.