Matt Levine of Bloomberg wrote about three pending cases brought on behalf of investors in Pioneer Merger Corp., Concord Acquisition Corp., and FAST Acquisition Corp. concerning the distribution of the SPACs’ assets to stockholders in a dissolution. Each of the SPACs obtained break-up fees after failing to complete their announced transactions, but chose not to distribute the payments to stockholders. Instead, in each case, management announced an intent to distribute the payments to the sponsor and themselves in a dissolution. Levine distills the central issue in the cases with his usual wit and clarity:
[W]hat if the sponsor puts in $10 million to cover expenses, and there are $10 million of expenses, and then the sponsor trips over a cord in the SPAC’s offices and falls into a wall and there’s a $50 million stash of diamonds behind the wall? The diamonds belong to the corporation (let’s say), but do all the shareholders get to share in their value? Or, if the SPAC doesn’t acquire a target, does the sponsor just hand the shareholders back their $10 plus interest and keep the diamonds? . . . . [T]he tripping-into-diamonds example is fanciful, but there is a real way that a SPAC can end up with no deal and a pile of cash: It can sign a deal with a target company, and then the target company can get out of the deal and pay a breakup fee. In general when a company signs a merger agreement — including with a SPAC — there will be some provisions in the agreement that allow the target to get out of the deal in some circumstances (for instance, if it gets a better offer), and if that happens the target usually has to pay the acquirer a fee to terminate the agreement. When the acquirer is a SPAC, it ends up with a bunch of cash and no merger. Who gets the cash: the public shareholders, or the sponsors?
Morris Kandinov LLP represents investors in all three cases. Contact Aaron Morris for additional information regarding the cases at firstname.lastname@example.org.