Watered down

26 February 2021 By Richard Beales Follow @richardbeales1

In poker, if you don’t know who the sucker is, it’s you. That’s also true of blank-check firms like the one that just did a deal with Lucid Motors. Sponsors, SPAC traders, merger co-investors and target-company owners all rake it in. Regular shareholders get the crumbs.

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The majority of special-purpose acquisition companies see their share prices fall after merging with targets, according to research revised in January by Michael Klausner of Stanford Law School, Michael Ohlrogge of New York University School of Law, and Emily Ruan.

These price drops are highly correlated with how much stock is issued relatively cheaply to insiders, the study found, implying other SPAC shareholders are bearing the cost of dilution and subsidizing the target companies.

Churchill Capital Corp IV on Feb. 22 announced a merger with Lucid Motors. An accompanying injection of capital by an investor group – referred to as public investment in private equity, or PIPE – valued the electric-car maker at $24 billion.

Joby Aviation, the 12-year-old electric air taxi startup that partners with Toyota Motor and Uber Technologies, will go public in a $6.6 billion reverse merger with blank-check company Reinvent Technology Partners, the firms said on Feb. 24.

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