July 17, 2020

Breakingviews: Dan Loeb may have to eat his SPAC cooking

by Breakingviews.

SPACs can get complicated. Far Point Acquisition, a vehicle backed by Dan Loeb’s Third Point hedge fund, in January agreed to buy tax-free-shopping payments firm Global Blue for $1.9 billion plus around $700 million of debt. With the pandemic torpedoing the business, Far Point is now recommending shareholders vote against the deal. But the way the transaction is structured muddles matters.

These SPACs – special-purpose acquisition vehicles – go public and raise funds with the aim of buying other companies. That was the plan with Global Blue. But then the coronavirus brought international travel almost to a halt, taking the target’s value sharply lower.

Comparisons are imperfect, but Switzerland-based duty-free operator Dufry’s shares are down more than 70% this year. Allow for net debt and that translates to a drop in enterprise value of about 30%. Apply that to Global Blue and the damage could be around $800 million.

An affiliate of Silver Lake, Global Blue’s biggest shareholder, this week offered concessions worth by its tally as much as $300 million, including giving up a planned pre-deal dividend. Far Point, though, stuck to its advice to vote against the deal.

Silver Lake’s tweaks may not match the loss of value. But because of how SPACs work, shareholders can vote for a deal and still redeem their shares for cash, essentially getting their money back while keeping upside-sharing warrants that kick in after an acquisition. So they have little if anything to lose by proceeding, even if the valuation is too high.

The loser from consummating the deal at too rich a price could be Third Point, which made a song and dance after Far Point was formed about its ability to backstop shareholder redemptions. That feature avoids the risk of reduced proceeds – something that can make selling companies dislike SPAC buyers. The firm’s funds are on the hook for up to $430 million if other holders decide to cash out. Loeb also agreed to pump in an extra $100 million alongside other investors, including China’s Ant Financial.

Third Point itself is, however, required to vote in favor of the deal. Add the backer’s 25% Far Point stake to a 12% interest that Silver Lake has accumulated, and not many other shareholders have to be on board to get to 50%. Then, barring litigation, the deal would go ahead. Loeb may end up eating his own cooking.

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