Beware, a 2023 Spac oddity
Vietnamese EV maker VinFast floats through the back door
Special purpose acquisition companies (Spacs) have fallen out of favour. Touted as an attractive way to list on the stock market, these blank-cheque firms have often merged with subpar companies at exorbitant valuations. Investors have now soured on the deals.
But last week the Vietnamese electric-vehicle maker VinFast seemed to defy the Spac-sceptics when it merged with Black Spade Acquisition Company at a $23bn valuation. The stock jumped on its Nasdaq debut, valuing the company at $85bn.
“Vietnamese EV maker worth more than Ford or GM after US listing,” headlined MainFT. Bloomberg said that the spectacular first-day pop “added $39bn to the net worth of the chairman Pham Nhat Vuong.” The stock has since snapped back, but with a $36bn market cap, the sugar-high from the listing still hasn’t worn off.
The press articles all mention that the chair controls 99 per cent of newly listed VinFast. But that’s not just an aside: it is the story. This is no conventional de-Spac; rather it resembles a backdoor listing into an empty listed shell. And the stock price is just an arbitrary number on a screen, not the market’s judgment of the company’s worth.
Reverse mergers into listed empty shells have a sketchy reputation. Most aren’t fraudulent but they give off bad vibes, conjuring up images of dodgy companies bypassing the national regulator to list on the stock exchange. Watchdogs around the world have sought to restrict them. Back in 2012 the SEC halted trading in almost 400 “dormant companies” after a wave of Chinese companies with dubious accounting had listed in the US via reverse merger. Last year, a Nasdaq OTC-listed deli in New Jersey was used as a shell company to list a bioplastics firm, resulting in the three promoters facing securities fraud charges.
Merging with a Spac is considered the “legitimate” way to effect a backdoor stock market listing. For starters, a Spac goes public with the express aim of merging with a future target. The Spac usually has 24 months to finalise a deal, and shareholders can both vote on the merger and redeem their shares to get their money back with interest. Spac teams often consist of seasoned dealmakers and respected business leaders, not spivvy chancers looking for a fast buck.
When a company merges with a Spac, it gets more than just a stock market listing. The Spac brings money and an immediate path to liquidity. This is different from an empty shell which may have little to no money or assets. The typical merger target is around 2-3 times the size of the Spac funds to counter the dilution from the 20 per cent sponsor “promote”. This also leaves enough shares for price discovery in the secondary market.
VinFast’s business combination with Black Spade is formally a de-Spac. Top-tier law firms have drafted the SEC filings, and all the procedural safeguards, including shareholder votes and redemption rights, have been scrupulously respected. But in substance the deal feels more like an old-school reverse merger.
For one thing, the Black Spade Spac — which raised $169mn at IPO — had only $13.6mn left after shareholder redemptions. That’s a derisory dowry for a $23bn marriage. For another, VinFast has less than one per cent free float, and trading volumes are low and falling. A stock market listing should provide price discovery and liquidity; VinFast shares have neither.
VinFast’s listing risks a repeat of the so-called “eejit trade”, made (in)famous in 2013 when the then-nationalised Allied Irish Bank briefly hit a $99bn market cap, making it Europe’s most valuable bank stock. At the time AIB had less than one per cent of its shares freely trading, resulting in an artificially (and ludicrously) inflated stock price. The Irish Finance Minister even warned investors against buying the stock.
The worry here is that retail investors might buy VinFast shares in the mistaken belief that the stock price reflects the collective market judgment. In fact, almost no market players have validated the valuation. After filing with the SEC, VinFast withdrew its IPO and so never tested investor appetite. And nearly all Spac shareholders redeemed for cash instead of taking VinFast shares. In June VinFast tried to raise $250mn via a PIPE (private investment in public equity), which is a common feature in de-Spacs, but dropped the idea.
According to the filings, VinFast and Black Spade alighted on the $23bn equity valuation by taking the forecast 2023 price-to-revenue multiple of EV maker Lucid Group, reducing it by 18 per cent to reflect a “new issue discount”, and applying it to the VinFast management incentive earnout revenue figure for 2023, which — we are clearly told — “is not intended to be a projection or forecast.” That does not sound like a feistily negotiated M&A outcome, much less a market verdict. In any case, there’s no fairness opinion on the valuation from a third-party financial adviser, even though they have become a “de facto requirement for de-Spacs”.
VinFast used the Black Spade Spac to get listed when it couldn’t find buyers for its stock. There’s no reason to suspect anything untoward, but the business combination has resulted in almost no proceeds, no price discovery for the stock and no secondary market liquidity. The line between legit and eejit has just got thinner.
>>> Up
* Corbion Raised to Buy at Berenberg; PT 25 euros
* Demant Raised to Overweight at JPMorgan; PT 340 kroner
* HSBC PT Raised to 1,000 pence from 930 pence at Jefferies
* IAG Raised to Buy at AlphaValue/Baader
* ITV Raised to Add at Numis; PT 80 pence
* Tecan Raised to Buy at Baader Helvea; PT 417 Swiss francs
>>> Down
* Tecan Raised to Buy at Baader Helvea; PT 417 Swiss francs
>>> Down
* Adyen Cut to Equal-Weight at Morgan Stanley; PT 1,025 euros
* Adyen Cut to Add at AlphaValue/Baader
* Adyen Cut to Hold at Jefferies
* Adyen PT Cut to 750 euros from 1,050 euros at Citi
* Estee Lauder PT Cut to $150 from $190 at Jefferies
* Exel Composites Cut to Reduce at Inderes; PT 3.50 euros (+)
* Polytec Holding Cut to Hold at Erste Group; PT 4.70 euros
* Proximar Seafood Cut to Hold at Pareto Securities (+)
* Spirax PT Cut to 8,805 pence from 9,145 pence at Jefferies
* Starbreeze Cut to Reduce at Inderes; PT 1.15 kronor
* SUSE Cut to Hold at Deutsche Bank; PT 16 euros
* SUSE Cut to Hold at Deutsche Bank; PT 16 euros
* Tulikivi Cut to Reduce at Inderes; PT 55 euro cents
* Virbac Cut to Hold at Stifel; PT 293 euros
>>> Initiation
>>> Initiation
* Alphabet Rated New Overweight at Guotai Junan Sec; PT $150.92
* Arcadis New Buy at Jefferies on Scope For Profitability Uplift
* Bergs Timber Rated New Buy at Pareto Securities; PT 46 kronor (+)
* DNB Markets Maintains Buy for Olav Thon Eiendomsselskap
* DNB Markets Maintains Buy for Olav Thon Eiendomsselskap
* Fresenius Medical Rated New Hold at Intesa Sanpaolo (+)
* Kering Rated New Outperform at Cowen; PT 670 euros
>>> Call
* Adyen Cut at Morgan Stanley, While Citi Sets Street-Low Target
* Corbion Upgraded at Berenberg on Multi-Year Discount to Peers
* Goldman’s Kostin Sees Room for Investors to Boost Stock Exposure (+)
* Kering’s Rated New Outperform at Cowen on Brand Optimization
* Kering’s Rated New Outperform at Cowen on Brand Optimization
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- Halma (H11 TH) +1.4%
- Rio Tinto (RIO1 TH) +1.3%
- Kering (PPX TH) +1%
- Kering’s Rated New Outperform at Cowen on Brand Optimization
- Equinor (DNQ TH) +0.8%
- Vodafone (VODI TH) +0.8%
- Bawag (0B2 TH) +0.7%
- Norsk Hydro (NOH1 TH) +0.7%
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- GSK (GS71 TH) +0.6%
- Nemetschek (NEM TH) -0.6%
- Deutsche Bank (DBK TH) -0.7%
- Fresenius Medical (FME TH) -0.7%
- Bechtle (BC8 TH) -0.7%
- Telefonica (TNE5 TH) -0.9%
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- Thyssenkrupp (TKA TH) -0.9%
- Encavis (ECV TH) -0.9%
- Wacker Chemie (WCH TH) -1%
- Nibe (NJB TH) -1.3%
DAX:
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- Siemens Energy (ENR TH) +0.6%
- Zalando (ZAL TH) +0.5%
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MDAX:
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- Evotec SE (EVT TH) +0.7%
- TAG Immobilien (TEG TH) -0.6%
- K+S (SDF TH) -0.6%
- Jenoptik (JEN TH) -0.8%
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SDAX:
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- Varta (VAR1 TH) -0.7%
- Deutz (DEZ TH) -0.8%
- DWS (DWS TH) -0.9%
Chinese equities weighed on the broader Asian stock gauge following less-than-expected adjustments in loan rates by Chinese banks. Other benchmarks in the region traded mixed. The Hang Seng Index declined as much as 1.8% and was set for its lowest close since November. Shares in mainland China also dropped into a second day, with finance stocks among the worst performers. Gauges in Japan and South Korea gained, but their advances may not prevent an Asian equity benchmark heading to its lowest level since March. Contracts for US equities were mostly steady. Chinese lenders cut the one-year loan prime rate by 10 basis points and kept the five-year prime loan rates unchanged even after policymakers called for more lending. Traders had expected a 15-basis-point cut on both rates. The disappointing loan rates data added to investor worries on China’s weak economic recovery and its impact on other markets. Cost to protect Asia ex-Japan’s investment-grade dollar bonds against default now heads for its longest stretch of increases in more than two years. Renewed property contagion concerns led Goldman Sachs Group Inc. to lower its full-year earnings-per-share growth estimate for MSCI China to 11% from 14%. It also reduced its 12-month index target from 70 to 67, implying 13% returns over the next 12 months. A gauge of dollar strength traded little changed, following small losses Thursday and Friday that trimmed its five weeks of gains. Treasury yields rose, with the 10-year approaching the highest level since November 2007. While concerns of an imminent recession are fading, wary investors are instead facing entrenched inflation and the prospect of more policy tightening ahead of the annual Jackson Hole, Wyoming, event on Thursday and Friday, which features speakers including Federal Reserve Chair Jerome Powell and his European counterpart President Christine Lagarde. In another sign of nervousness, the Cboe Volatility Index climbed above 18 intraday on Friday, touching the highest level since May. Bank of America Corp.’s Michael Hartnett warned that stocks may drop another 4%, given China’s economic turmoil and the jump in bond yields. Meanwhile, US equities gained some ground in the final minutes of Friday’s session in moves likely exacerbated by the monthly options expiration, but it wasn’t enough to prevent the S&P 500 ending nearly even and the Nasdaq 100 inching down. MSCI Inc.’s global equities benchmark notched its biggest weekly loss since the March meltdown of Silicon Valley Bank. American megacap tech stocks recorded their third straight weekly drop last week, the longest such streak this year, as fears of higher global interest rates weigh on sentiment while bonds bounce off multiyear lows. Oil rose after suffering from its first weekly loss since June and gold ticked higher.
Nikkei +0.24% Hang Seng -1.48% CSI -0.69% Shanghai -0.57% Shenzen -0.34%
Eur$ 1.0883 CNH 7.3244 CNY 7.3065 JPY 145.36 GBP 1.2740 CHF 0.8820 RUB 94.0108 TRY 27.1922 WTI$ 81.87 Gold 1.893.56 BTC 26,068 -0.63% ETH 1,677 -0.71%
S&P -0.07% Nasdaq -0.05% EuroStoxx -0.07% FTSE +0.02% Dax -0.10% SMI -0.05%
Macro :
- Germany Has Drafted Chinese Investment Curbs, Handelsblatt Says
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Keep an eye on :
- AIR FP : FAA Posts Directive for Fixes to Pratt Engines on Airbus A320
Keep an eye on :
- AIR FP : FAA Posts Directive for Fixes to Pratt Engines on Airbus A320
- ATCOA SS : Atlas Copco to Buy Australian Dewatering Pump Maker Sykes
- BO DC : B&O CEO Says Company Poised for Next Boom, Borsen Reports
- BSGR NA : B&S Group Sees FY Ebitda Margin About 5%
- DD US : DuPont Said to Near Deal to Sell $1.8 Billion Unit to Jordan Co.
- FIA1S FH : Finnair CEO Topi Manner Leaves to Join Elisa
- HVPE LN : Berlusconi Office Backing $100 Million Pharma Startup Qualifyze
- ISP IM : Italy Could Partly Reimburse Banks Later for New Tax: Corriere
- IPN FP ; Exelixis, Ipsen's Prostate Cancer Combo Cuts Risk of Disease
- MMC US : Marsh to Buy Honan Insurance Group
- PIA IM : Roberto Colaninno, Chairman of Vespa-Maker Piaggio, Dies at 80
- POLY LN : Polymetal Aims to Sell Russia Business Within Six Months: FT
- SBBB SS : Troubled Swedish Landlord SBB Sees Exit of CFO and Deputy CEO
>>> Up
* Corbion Raised to Buy at Berenberg; PT 25 euros
* Demant Raised to Overweight at JPMorgan; PT 340 kroner
* HSBC PT Raised to 1,000 pence from 930 pence at Jefferies
* IAG Raised to Buy at AlphaValue/Baader
* ITV Raised to Add at Numis; PT 80 pence
* Tecan Raised to Buy at Baader Helvea; PT 417 Swiss francs
>>> Down
* Tecan Raised to Buy at Baader Helvea; PT 417 Swiss francs
>>> Down
* Adyen Cut to Equal-Weight at Morgan Stanley; PT 1,025 euros
* Adyen Cut to Add at AlphaValue/Baader
* Adyen Cut to Hold at Jefferies
* Adyen PT Cut to 750 euros from 1,050 euros at Citi
* Estee Lauder PT Cut to $150 from $190 at Jefferies
* Polytec Holding Cut to Hold at Erste Group; PT 4.70 euros
* Spirax PT Cut to 8,805 pence from 9,145 pence at Jefferies
* Starbreeze Cut to Reduce at Inderes; PT 1.15 kronor
* SUSE Cut to Hold at Deutsche Bank; PT 16 euros
* SUSE Cut to Hold at Deutsche Bank; PT 16 euros
* Tulikivi Cut to Reduce at Inderes; PT 55 euro cents
* Virbac Cut to Hold at Stifel; PT 293 euros
>>> Initiation
>>> Initiation
* Alphabet Rated New Overweight at Guotai Junan Sec; PT $150.92
* Arcadis New Buy at Jefferies on Scope For Profitability Uplift
* DNB Markets Maintains Buy for Olav Thon Eiendomsselskap
* DNB Markets Maintains Buy for Olav Thon Eiendomsselskap
* Kering Rated New Outperform at Cowen; PT 670 euros
>>> Call
* Adyen Cut at Morgan Stanley, While Citi Sets Street-Low Target
* Corbion Upgraded at Berenberg on Multi-Year Discount to Peers
* Kering’s Rated New Outperform at Cowen on Brand Optimization
* Kering’s Rated New Outperform at Cowen on Brand Optimization
Wall Street All-Stars Including Weinstein, Ackman Bid for Hedge Fund
Drama-plagued Sculptor Capital already agreed to a sale to Rithm Capital
Boaz Weinstein and several other high-profile investors including William Ackman and Marc Lasry have made a rival offer for Sculptor Capital Management SCU -0.80%decrease; red down pointing triangle, a hedge-fund firm that already agreed to sell itself to another investment firm.
In late July, Sculptor agreed to a sale to real-estate investment firm Rithm Capital RITM 0.10%increase; green up pointing triangle for about $639 million, or $11.15 in cash per Class A share of Sculptor, which formerly was known as Och-Ziff Capital Management. The offer was an 18% premium to Sculptor’s closing price at the time. Should it be completed, the deal would leave Sculptor’s current management, led by Chief Executive James Levin, in place.
Weinstein’s group presented an offer for Sculptor that was rejected during the sales process and it subsequently increased its bid to more than $12 a share, people familiar with the matter said. Sculptor shares closed at $11.20 on Friday. If successful, the group likely would install new management, the people said.
Weinstein runs Saba Capital Management, while Ackman leads Pershing Square Capital Management and Lasry helms Avenue Capital Group, all prominent New York hedge-fund firms. Financing for their bid for Sculptor is expected to come from their personal money, not their firms’ cash.
“We have received an unsolicited proposal from a third party that had participated in the strategic alternatives process,” Sculptor said in a statement. “Though this latest bid’s headline valuation is higher than the Rithm transaction, this proposal only includes committed financing for less than half of the amount required to consummate the transaction.”
The Weinstein group is confident it has sufficient financing, according to someone close to the matter.
Terms of the merger agreement allow Sculptor to terminate its deal with Rithm if a superior offer emerges, though Sculptor could pay the real-estate investment trust a fee of about $16.5 million.
Weinstein is best known for profiting in 2012 when bets by a JPMorgan Chase trader nicknamed The London Whale went awry. Ackman, who made his name as a prominent shareholder activist, made complex trades that netted $4 billion as the coronavirus emerged and Lasry is a debt-focused investor who was a co-owner of the Milwaukee Bucks basketball team.
It is the latest drama for Sculptor, which manages $34 billion and remains the largest U.S. publicly traded hedge fund. In recent years the firm has gained more attention for the sky-high pay of its chief executive, a bribery scandal and an ugly battle involving its former founder.
Launched in 1994 by former Goldman Sachs merger arbitrager Daniel Och with the backing of the Ziff family, Och-Ziff for years enjoyed steady-if-unspectacular returns and soaring assets. The firm’s assets hit $50 billion in 2005 and it went public in 2007, its shares reaching a high of $30.65.
In 2012, a credit bet by the then-30-year old Levin—who goes by Jimmy—netted the firm $2 billion in profits. Och first got to know Levin when he taught Och’s son to water ski at summer camp in Wisconsin.
By 2017, Levin was in line to succeed Och as chief executive. Over time, though, Och soured on Levin and moved to reassert control of the firm, before eventually leaving, after selecting another CEO.
Sculptor’s assets have stagnated over the past decade, partly due to the fallout from accusations that it bribed government officials in Democratic Republic of Congo, Libya and other African countries, charges that the firm settled in 2016, paying $412 million in penalties. Och settled separate civil charges.
In recent years, Och, who remains the company’s second-largest shareholder with a 12.5% stake, has criticized Levin’s pay, which amounted to $145.8 million in 2021 and totaled nearly $90 million in 2020 and 2019 combined, according to regulatory filings. Last year, a Sculptor director appointed by Och resigned from the board, alleging governance failures including “staggering” compensation awarded to Levin, a charge the company denied. Last year, Levin made $6.36 million in compensation, according to the filings.
When he was running the firm, Och agreed to separate pay packages for Levin worth over $100 million combined.
Levin is the firm’s largest shareholder with a stake of nearly 14% and voting power of more than 20%.
Last week, Och and some of his former partners wrote to the special committee of the company’s board, expressing his unhappiness with the sale to Rithm, which he said doesn’t reflect the full value of the company.