SPAC engineering reaches new heights as scrapped deal sends pharma firm’s stock plunging 36%

Pharma worker
Pharma worker

  • After a novel SPAC buyback deal imploded, shares of clinical-stage biopharma company Immunovant plunged as much as 35.7% on Tuesday, according to a Bloomberg report.
  • The deal collapsed on Monday, sending shares in Immunovant tumbling below $7 on Tuesday from above $10 last week.
  • Exotic SPAC deals have at times received the regulatory side-eye.
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After a novel SPAC buyback deal imploded, shares of clinical-stage biopharma company Immunovant plunged as much as 35.7% on Tuesday, according to a Bloomberg report.

Drugmaker Roviant Sciences had been plotting a new type of SPAC deal – whereby it would use the proceeds from its own SPAC to take over Immunovant, a former subsidiary that had gone public via SPAC in 2019.

The mind-bending deal, according to Bloomberg, collapsed on Monday after Roviant announced it would simply go public via SPAC, without any of the other maneuvers. Instead of taking over Immunovant, Roviant will invest $200 million in the company through stock purchases, according to statements from both firms.

The news sent Immunovant stock tumbling below $7 on Tuesday from above $10 before the weekend. Shares were worth more than $50 late last year.

“Roivant and Immunovant explored a range of possible transactions over the past few months, including a potential acquisition by Roivant of the minority interest in Immunovant, and ultimately agreed on this significant investment,” said Matt Gline, Roivant’s CEO, in a statement. Immunovant’s CEO added that the $200 million would go toward drug development.

Exotic SPAC deals have at times received the regulatory side-eye. In July, legendary investor Bill Ackman dropped plans to use his SPAC to buy shares in Universal Music Group after the SEC said he was venturing into uncharted legal territory.

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The SPAC boom has cooled off but lawsuits against the blank-check firms are reportedly booming

Wall Street.
Big Tech recovers after a rough day Wednesday on Wall Street.

  • Class-action suits against SPACs ramped up in the first half of 2021, according to a new report.
  • 14 federal lawsuits were filed against SPACs in the first half of 2021, up from seven in the first half of 2020 and just six in 2019.
  • “The better the market for investors, the worse the market for class-action securities lawyers,” said Joseph Grundfest, director of the Stanford clearinghouse and a former SEC official, in a statement.
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A cooling of the SPAC craze that gripped markets over the last two years has been followed by a wave of class-action suits against blank-check firms in the first half of 2021, according to a new report by Cornerstone Research and Stanford Law’s Securities Class Action Clearinghouse.

14 federal lawsuits were filed against SPACs in the first half of 2021, up from seven in the first half of 2020 and just six in 2019. Eight of the 14 filings in 2021 revolved around alleged misrepresentation of a product’s commercial viability. Half of all federal lawsuits against SPACs so far this year involved the auto industry.

“The rise of SPAC-related suits is no surprise given the huge increase in SPACs we saw in 2020 and early 2021,” Bloomberg intelligence analyst Elliott Stein told Bloomberg.

The report comes as interest in SPACs is waning, as some investors worry the blank-check deals pose outsized risks compared to normal IPOs.

In July, the SEC fined space SPAC Momentus $8 million for misrepresenting the commercial viability of its rocket propulsion technology. Execs at Momentus said the company’s tech had been shown to be effective, although company test flights had not met internal benchmarks for success.

In the wake of the Momentus revelations, several federal class-action suits against the company are being prepared, according to public statements.

Bloomberg was the first to report the findings from Cornerstone.

“The better the market for investors, the worse the market for class-action securities lawyers,” said Joseph Grundfest, director of the Stanford clearinghouse and a former SEC official, in a statement.

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Churchill Capital shareholders approved the SPAC’s merger with Lucid Motors after CEO Michael Klein appealed directly to retail investors

Lucid Air.
Lucid Motors plans to go public in a $24 billion tie-up with a SPAC

  • Churchill Capital Corporation IV is set to close on its merger of EV start-up Lucid Motors on Friday.
  • The closing of the merger was delayed earlier this week after not enough shareholders had cast a vote on the deal.
  • It took a personal appeal to retail investors from Churchill chairman Michael Klein to get approval.
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Shareholders of Churchill Capital Corporation IV approved its merger with EV start-up Lucid Motors following a personal appeal by Churchill chairman Michael Klein to retail investors using trading apps like Robinhood.

The merger deadline was extended on Thursday after not enough shareholders had voted.

“We welcome all of the new shareholders,” Klein said in an investor call on Thursday. “However, we need you to participate in the election process. In particular, if you are participating from the new trading platforms, the new apps that may not necessarily be directing you clearly to a voting service, we need your vote,” Klein said, adding that it “literally takes one minute.”

Churchill Capital has been a popular SPAC stock with retail investors, but it is likely less so after falling 63% from its mid-February peak of $64.84. The SPAC was often a top-mentioned name on Reddit’s Wall Street Bets forum.

Klein also said that e-mail spam filters could have played a role in so few shareholders participating in the scheduled vote and approving the deal on time.

“It should have been mailed or emailed to all stockholders. I know this is technical. And I know that some of those emails may have gone into your spam folder or otherwise. But it’s critical and important to vote and to have the tools to vote,” Klein said. “I need to remind you to check your emails, and check your spam emails.”

Ultimately, 98% of votes cast were in support of the proposed merger between Churchill and Lucid. Shares of the company were up as much as 7% in Friday trades.

Lucid Motors will delist from the New York Stock Exchange and trade on the Nasdaq under the symbol “LCID” beginning on July 26.

Churchill Capital stock chart

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Tom Barrack’s SPAC withdraws its IPO filing days after the billionaire was arrested and charged with illegal lobbying

Tom Barrack, former Deputy Interior Undersecretary in the Reagan administration, delivers a speech on the fourth day of the Republican National Convention on July 21, 2016 at the Quicken Loans Arena in Cleveland, Ohio.
Thomas Barrack

  • The SPAC backed by Thomas Barrack withdrew its IPO application with the SEC on Friday.
  • The move comes days after the billionaire was arrested and charged with seven felony counts.
  • Falcon Acquisition had filed for a $250 million IPO in March with the goal of targeting tech-driven businesses.
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The blank-check company backed by billionaire Thomas Barrack withdrew its application for an initial public offering Friday, just days after the 74-year-old was arrested and charged with seven felony counts.

Falcon Acquisition, the New York based-SPAC led by Barrack, filed for a $250 million IPO in March this year with the goal of targeting tech-driven businesses. Falcon Acquisition was founded in 2020.

In a letter to the Securities and Exchange Commission dated July 23, the company only said, “it has elected to abandon the transactions subject thereto.”

On July 20, Barrack, the chairman of Donald Trump’s inaugural fund, was accused of illegally lobbying the Trump administration on behalf of the United Arab Emirates.

Barrack was charged along with Matthew Grimes and Rashid Sultan Rashid Al Malik Alshahhi.

The billionaire’s spokesperson told Insider that Barrack, founder and former executive chairman of the investment-management firm Colony Capital, would plead not guilty.

Barrack was arrested in Sylmar, California, and has been held in a federal jail in Los Angeles since then. He is scheduled to appear before a federal judge in Los Angeles on Friday.

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Zoom may invest in a $5 billion SPAC deal to take event-manager Cvent public, report says

Zoom founder Eric Yuan speaks with a treader after the Nasdaq opening bell ceremony on April 18, 2019 in New York City.

Zoom is in discussions to invest in a $5 billion blank-check deal that would take event-management software company Cvent public, Bloomberg reported on Wednesday.

The popular video-conferencing app is a potential investor in Dragoneer Growth Opportunities Corp. II, which is merging with Cvent in a transaction that values the cloud-based company at more than $5 billion including debt.

Zoom is trying to secure 10% of the equity being raised to support the deal, Bloomberg said, citing sources. The investment could complement Zoom’s burgeoning live-events strategy.

The company has been expanding its business through a series of recent product launches. On Wednesday, it announced the launch of a platform for hosting interactive and immersive virtual events – Zoom Events. Other new products include Zoom Phone, Zoom Room, and Zoom for Home.

Its software can also be used to administer chats, talks, and meet-ups on Cvent’s managing platform.

Zoom didn’t immediately respond to Insider’s request for comment on its potential investment.

During 2020, the app became so popular that it was used for everything from graduation ceremonies to reunions, happy hours, and engagement parties. It recently went a step further to diversify beyond video chat by making its biggest acquisition yet, the near-$15 billion purchase of cloud contact center software-maker Five9.

Analysts say it could be looking at 11 other companies including Calendly, Twilio, and 8×8 to move beyond video calls.

Zoom’s stock price has surged more than 35% in the past 12 months, and is up 4% so far this year.

Read More: The head economist at a blockchain fintech firm names 2 of the most promising crypto SPAC deals on his radar – and explains why blank-check companies can be better alternatives to buying cryptocurrencies

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Bill Ackman’s PSTH scraps Universal Music deal after SEC pushback -but the billionaire investor is still buying a stake

Ackman, Bill Ackman
Bill Ackman.

  • Bill Ackman’s PSTH won’t buy 10% of Universal Music for about $4 billion after SEC pushback.
  • The billionaire investor’s Pershing Square funds will purchase a stake in Universal instead.
  • PSTH now plans to pursue a conventional SPAC transaction.
  • See more stories on Insider’s business page.

Bill Ackman has scrapped his plan to buy 10% of Universal Music for $4 billion using his special-purpose acquisition company (SPAC) after federal regulators poured cold water on the proposed transaction, the billionaire investor told Pershing Square Tontine Holdings (PSTH) shareholders in a letter on Monday.

PSTH will transfer its share-purchase agreement to Ackman’s Pershing Square company and its affiliates, the investor wrote. That way, he still becomes a shareholder and Universal-owner Vivendi won’t be “left at the altar,” he added.

The SPAC’s board unanimously decided on Sunday to ditch the Universal deal after speaking to the SEC and realizing the agency would probably nix it. PSTH’s directors will now focus on completing a conventional SPAC deal, and have 18 months to close one unless shareholders vote for an extension.

Ackman was caught off guard by the backlash from some PSTH shareholders to the complexity and structure of the original deal, he noted in his letter. The investor also underestimated its potential impact on investors who can’t hold foreign securities, margin their shares, or own call options on PSTH stock, he added.

Before the SEC dashed his hopes, Ackman envisaged PSTH shareholders receiving Universal shares after Vivendi takes the division public this September, continuing to own PSTH stock while the SPAC sniffs out a merger free of the usual time constraints, and securing rights to buy shares in a new investment vehicle called a SPARC once it agrees its own transaction.

PSTH’s withdrawal from the Universal deal will disappoint some of Ackman’s fans, who spent seven months speculating about the identity of his acquisition target. Others who weren’t thrilled at the Universal deal might welcome the SPAC hitting the reset button on its search.

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Space-transport SPAC Momentus hit with $8 million SEC fine after misleading investors over propulsion technology

FILE PHOTO: The U.S. Securities and Exchange Commission logo adorns an office door at the SEC headquarters in Washington, June 24, 2011.   REUTERS/Jonathan Ernst
FILE PHOTO: SEC

  • The SEC announced charges on Tuesday against parties involved in a SPAC deal to take a space-flight company public.
  • A $1.2 billion SPAC deal sought to merge with Momentus, a private start-up working on transporting satellites into space.
  • But a test mission yielded “no data to suggest that that thruster would deliver an impulse of any commercial significance.”
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The SEC on Tuesday announced charges against parties involved in a $1.2 billion space-transport SPAC for defrauding investors and obscuring the CEO’s status as a national security risk.

“This case illustrates risks inherent to SPAC transactions, as those who stand to earn significant profits from a SPAC merger may conduct inadequate due diligence and mislead investors,” said SEC Chair Gary Gensler in a statement.

The SPAC, Stable Road Acquisition Corp, had sought to merge with Momentus, a private start-up, wit the intention of taking it public. Momentus’s key offering was a “microwave electro-thermal water plasma thruster,” a way of zapping water vapor to propel a spacecraft, with the aim of transporting satellites into space.

But Momentus’s propulsion tech failed to show results, according to SEC filings. A test mission fell well short of the company’s own benchmarks, and a former Momentus employee said that the test yielded “no data to suggest that that thruster would deliver an impulse of any commercial significance.”

That didn’t stop the company’s CEO, Mikhail Kokorich, from boasting of its successes.

“Water plasma propulsion is now technologically mature enough to be baselined for operational in-space transportation missions,” he told a trade publication in 2019, citing the Momentus test flight.

Meanwhile, Kokorich, who is a Russian citizen, had caught the eye of US authorities. CFIUS, a government body that scrutinizes foreign investment, flagged Kokorich as a national security threat, denying him permits and requiring him to divest from Momentus.

Kokorich’s work visa was revoked. He applied for political asylum as a Russian dissident, but was denied. When the FBI and other agencies showed up at Momentus HQ to question employees, Kokorich was detained at an immigration detention center, though he was let go on bond.

Little of this was disclosed to investors. Despite Momentus disclosing in filings that it was “highly dependent” on Kokorich personally, he did not reveal his asylum application had been rejected. His presence at the company also prevented Momentus from getting crucial permits approved, according to the SEC.

The SEC is pursuing litigation against Kokorich in federal court, while all other parties have settled for a total penalty of $8 million. The $1.2 billion SPAC deal could still go ahead, though the SEC is requiring that the company let investors pull out freely.

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The SEC is reportedly looking into conflicts of interest among major banks in the SPAC deal-making process

The headquarters of the U.S. Securities and Exchange Commission (SEC) are seen in Washington, July 6, 2009. REUTERS/Jim Bourg
The headquarters of the U.S. Securities and Exchange Commission are seen in Washington

  • The SEC is investigating banks over conflicts of interest in the SPAC deal-making process, Reuters first reported.
  • In particular, the regulator is looking into instances of banks acting as underwriter and adviser on the same deal.
  • The SEC has requested information from top SPAC underwriters including Morgan Stanley and Goldman Sachs.
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The US Securities and Exchange Commission is investigating major banks over conflicts of interest in the SPAC deal-making process that exploded in the past year, Reuters first reported.

In particular, the regulator is looking into instances wherein the banks acted both as the underwriters and the advisers on the same SPAC deal and whether certain fee structures may have incentivized underwriters to secure unsuitable mergers, sources told Reuters.

“The big issue for the SEC is to understand if the advisers are conflicted,” one of the sources told Reuters.

The SEC, according to sources, has requested information from top SPAC underwriters including Citigroup, Credit Suisse, Morgan Stanley, and Goldman Sachs. Requests do not imply malpractice.

SPACs are shell companies that list with the aim of merging with private companies and taking them public.

This method is typically done in lieu of an IPO or a direct listing and has garnered support from Wall Street heavyweights as well as pop icons and professional athletes.

Management teams of SPACs, also known as sponsors, generally pay banks a 5.5% fee for underwriting the process. Banks, however, can earn more if they also represent the merger target.

Such conflict of interest could harm investors, sources told Reuters.

Under the current law, banks are not required to disclose their fees in regulatory filings while law and accounting firms are.

SPACs have exploded in popularity in the last year. In 2020, a total of 248 SPACs raised $83.3 billion according to SPAC Analytics. But over halfway through 2021 alone, data already show 368 SPACs that have raised $190 billion, comprising 59% of initial public offerings.

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Nextdoor raises $686 million at an implied valuation of $4.3 billion and says it will go public via a SPAC

Nextdoor CEO Sarah Friar sits on stage in front of a blue background smiling.
Nextdoor CEO Sarah Friar

  • Nextdoor, the social network for neighbors, plans to go public at a valuation of $4.3 billion.
  • It aims to list on Nasdaq by merging with a blank-check company owned by Khosla Ventures.
  • The merger will generate $686 million for Nextdoor.
  • See more stories on Insider’s business page.

Nextdoor, the social network for neighbors, is to go public via a blank-check merger at an expected valuation of $4.3 billion.

The company plans to list on the Nasdaq exchange through a reverse merger with a special purpose acquisition company (SPAC) operated by Khosla Ventures, and will raise $686 million in doing so, it said Tuesday.

Nextdoor, founded in 2011, allows neighbors to plan events and discuss local issues, among other things. The Nextdoor network operates in 275,000 neighborhoods, the company says.

Nextdoor said Tuesday that it hopes to use the proceeds of the deal to grow its user base and ramp up monetization of its platform for small businesses.

Investors in Nextdoor’s latest fundraising include T. Rowe Price, Soroban Capital, and Baron Capital Group. Axel Springer, Insider’s parent company, is also an investor in Nextdoor.

Nextdoor had been considering going public either through a direct listing or a SPAC – also known as a blank-check company – since last year, Bloomberg first reported, citing unnamed sources close to the matter.

The deal announced Tuesday is subject to approval by Khosla shareholders and is expected to close in the fourth quarter of 2021.

Nextdoor raised $393 million in venture capital funding, according to data from Crunchbase.

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SoFi is soaring in popularity on Reddit as retail investors look for opportunities in the fintech company following its merger with a Chamath Palihapitiya-backed SPAC

Chamath Palihapitiya
  • Chamath Palihapitiya-backed SoFi Technologies is gaining steam among Redditors.
  • Comments about the company, which went public last month, surged on Reddit this week.
  • Retail traders noted the end of the post-merger lockup period and the high short interest.
  • See more stories on Insider’s business page.

SoFi Technologies is quickly gaining traction among retail investors.

The fintech company that went public via a Chamath Palihapitiya-backed SPAC last month has seen an influx of retail flows in the last week, according to data from Vanda Research.

SoFi retail inflows Vanda Research

In a note, Vanda analyst Giacomo Pierantoni and senior strategist Ben Onatibia said the stock is one that “looks increasingly likely to capture some notoriety” as comments about the company accounted for 20% of activity on Reddit’s Wall Street Bets forum in the last day.

The analysts noted the end of the post-merger lockup period and the rise in short interest as “the two main arguments to buy the stock” among retail traders.

One Redditor, who received 500 upvotes, said in a post that the end of the lockup period Monday would give retail traders an opportunity to buy into the stock. Shares dropped 2% Tuesday, and Wednesday they rose 2.1% at 8:40 a.m. in New York.

Another Redditor, who received 1,600 upvotes, posted a bullish view on the company, saying it has a lot of potential.

“The moment I heard SOFI was going public was the moment I dropped a lot of money into it, used the app for a long time and they’re going to be dominating the FinTech sector,” the Redditor said.

Redditors, who have become known to invest in heavily shorted companies, also noted SoFi’s high short interest rate. According to Fintel.io, the company has a short-volume ratio of 21%.

Travis Rehl, the founder of Reddit investing-tracker HypeEquity, said in a morning note that many retail investors looking to hold SoFi long-term are comparing it to the next Square or PayPal. Among other financial services, the company has a trading platform called SoFi Invest.

The platform recently announced it would allow users to get in on the initial public offerings of four Palihapitiya-backed blank-check companies. Self-proclaimed “SPAC king” Palihapitiya is a favorite among retail investors, as other companies backed by him, including Clover Health and Virgin Galactic, have become meme stocks.

Read more: These 5 stocks have definite potential for a meme-driven short-squeeze this week, according to Fintel. One of them is even stealing the AMC and GameStop spotlight with its celebrity SPAC status.

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