Net Cash Per Share: The Key to Disclosing SPAC Dilution

Abstract

The Securities and Exchange Commission (SEC) has recently proposed regulations that would address a wide range of issues governing special purpose acquisition companies (SPACs).1 Central among these issues is the disclosure of a SPAC’s dilution and dissipation of cash as of the time of its merger, a topic two of us have addressed in an earlier article.2 The SEC’s concern (and ours) is that when a SPAC exchanges its equity for that of a target company, the value of the SPAC's equity is not what it appears to be, and not what it is stated to be in its merger agreement. First, the SPAC’s equity is spread among claimants that paid no cash into the SPAC. Second, much of the cash that was paid into the SPAC at the time of its IPO will have been paid out to various advisors by the time of the merger. As the SEC proposal recognizes, SPAC proxy statements fail to disclose how little net cash each SPAC share represents, and hence how much net cash will be exchanged for shares in the merger target.