The Issues With SPACs

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There’s a new saying making the rounds on Wall Street, Andrew writes in his latest column. It’s not in good taste, but it captures the new trend transforming the financial world: “I know more people who have a SPAC than have Covid,” financiers keep telling Andrew. (We warned you.)

The blank-check company boom shows no signs of slowing, with SPACs — or special purpose acquisition companies — raising nearly $26 billion in January, a monthly record in a red-hot market. These listed shell companies exist solely to find a private company to buy and take public. SPACs typically acquire a target around five times their size: With more than 300 such funds sitting on some $100 billion in cash currently seeking acquisitions, that implies financial firepower of $500 billion.

SPAC funds raised per month

Source: Dealogic

The New York Times

“Every friend is launching a SPAC,” the billionaire fund manager Bill Ackman told Andrew. “It’s like, ‘Oh, yeah, I got one, too.’” Mr. Ackman’s SPAC is the largest, raising $4 billion last year. (He has yet to name an acquisition target.) Other financiers getting in on the SPAC-tion include the tech investor Chamath Palihapitiya, the veteran banker Michael Klein and the buyout specialist Alec Gores, all of whom have multiple SPACs. Yesterday, the former N.F.L. quarterback Colin Kaepernick filed for his own SPAC.

“As a guy who was doing deals in the market in 1999, it feels exactly like it did then,” said Terence Kawaja, the founder of the boutique bank Luma Partners. (He worked as a banker on Time Warner’s sale to AOL.) “I worry about the public investors.” There are several misaligned incentives between the sponsors who put up a SPAC’s initial capital and the investors who come later, especially after a company is bought:

Sponsors often say they have invested in a SPAC’s deals, aligning them with other investors. But they are also given big stakes essentially for free, so, as Andrew writes, “they are playing partly with house money.”

Big mainstream investors that put money in a SPAC deal often get favorable terms that guarantee them a modest but predictable return no matter what happens.

Sponsors don’t owe investors in the takeover targets any fiduciary duty, and few seek so-called fairness opinions to validate the price they are paying.

SPACs generally must use the money they’ve raised for a takeover within two years or return it, incentivizing them to get any deal done, rather than a good one.

This isn’t to say that traditional I.P.O.s are better, as Andrew explains (speed and certainty make SPACs more attractive for many of the acquired companies). And some sponsors are devising ways to make SPACs more friendly to all investors.


President Biden meets with C.E.O.s to push his stimulus plan. The leaders of Gap, JPMorgan Chase, Lowe’s and Walmart met with Mr. Biden to discuss his $1.9 trillion proposal and efforts to raise the minimum wage to $15 an hour.

Day 1 of the impeachment trial. The Senate voted 56-44 that the proceedings were constitutional, after Democratic House impeachment managers played disturbing highlights from the Jan. 6 riot at the Capitol. Former President Donald Trump, who is accused of inciting the violence, was said to be angry with his legal team’s meandering defense.

A real estate giant may try to cut ties with Mr. Trump’s business. Vornado is said to be considering buying out the Trump Organization’s stakes in jointly owned office towers in Manhattan and San Francisco, according to The Wall Street Journal. Vornado’s chief, Steve Roth, reportedly believes prospective buyers have stayed away because of the association with Mr. Trump.

Salesforce will permanently allow some remote working. The software giant will let most of its 54,000 employees work from home at least two days a week, and some to do so full time. That could transform San Francisco, where Salesforce is by far the biggest employer.

Huawei challenges its status as a national security threat. The Chinese telecom giant filed a lawsuit in the U.S. Court of Appeals for the Fifth Circuit to review an F.C.C. ruling, issued in December by the Trump administration, that blocks it from selling equipment to American companies.


The U.S. Chamber of Commerce has named Suzanne Clark as its new C.E.O. Replacing Tom Donohue after his 22-year run, she is the first woman to run the Chamber in its 109-year history. The Times was the first to talk to Ms. Clark about her plans for the country’s largest business lobbying group.

“The Chamber has a unifying economic agenda, and we will work with anyone who wants to advance it,” Ms. Clark said. This may be easier said than done, since the group was closely aligned with the Republican Party for much of her predecessor’s tenure. Her toughest challenge may be balancing Republicans dismayed at the group’s new allies and the Democrats who have historically viewed it as an antagonist.

After joining the Chamber in 1997, Ms. Clark left in 2007 for stints at the Potomac Research Group and the National Journal Group. She returned in 2014 and was promoted to president in 2019. She also sits on two corporate boards.

Chamber of Commerce donations, by party of candidate


The New York Times

She takes over as business rethinks its relationship with politics, embracing social issues and re-evaluating the effect of political donations, especially after the Capitol riot. Ms. Clark has already pushed to modernize the Chamber’s platform, focusing on issues like bridging the racial wealth gap and addressing climate change. Still, many core principles remain the same: It is against raising the federal minimum wage to $15 an hour and rolling back Trump’s corporate tax cuts.

Ms Clark said businesses should forge a balance between the bottom line and their role in society. “Part of our job is helping a business do well — it’s an advocacy job where we’re saying we want to create the right conditions for job creators to thrive,” she said. “But the other part of our job is helping businesses do good, whether that’s E.S.G., whether that’s equality of opportunity, whether that’s figuring out any of the issues that C.E.O.s are increasingly being called on to talk about.”

GameStop market capitalization

Source: Sentieo

The New York Times

Is it over? GameStop’s stock is down 86 percent from its peak at the height of meme-stock mania. In terms of market cap, the decline has wiped about $20 billion from the retailer’s value. The boom-and-bust pattern is similar for AMC, Bed Bath & Beyond and other companies swept up in the seemingly short-lived frenzy.

As the pandemic hammers commercial real estate markets in London and New York City, landlords are seeing their traditional power erode. Some are calling for overhauls of tenancy laws.

London landlords have been forced to give breaks to their tenants, The Times’s Eshe Nelson writes. Concessions include rent holidays and leases in which tenants pay lower base rents but add a percentage of gross income. Some tenants have used a company voluntary arrangement, somewhat similar to a prearranged bankruptcy filing in the U.S., to push for better terms.

There are still major challenges, Eshe tells us: “There are many more businesses wondering how they will pay months of rent, which built up while their doors have been shut. In Britain, this is pretty urgent because the moratorium on evictions is set to expire at the end of March. Tenants and landlords need to find a sustainable way out.” (Readers: If you’re confronting this challenge, getting a rent holiday, changing your lease terms or facing foreclosure, get in touch.)

In New York, big tenants are pushing back, too. Condé Nast is withholding $2.4 million in rent at One World Trade Center owed for last month as part of a dispute with its landlords. New York landlords have also been offering several months’ free rent and money for property improvements.

Cynthia Lummis is a cattle rancher, libertarian and the Senate’s only known Bitcoin holder. The Wyoming Republican, a vocal crypto supporter, sensed an opportunity after Tesla’s $1.5 billion Bitcoin investment made headlines this week: She asked Elon Musk on Twitter if he’d considered moving to her home state, boasting that “it has the best laws for digital assets.” Ms. Lummis made the suggestion “because of that pioneering spirit we share,” she told DealBook.

“We can’t pretend like this is a fad,” Ms. Lummis said. She sits on the Senate Banking Committee, among others, and is starting a Financial Innovation Caucus where she’ll try to persuade colleagues to go the way of Wyoming. The state has drawn crypto companies with fintech regulations that make it more attractive to set up shop there, the senator explained. Bitcoin investments by Tesla and other companies, and concerns about Chinese fintech dominance, highlight the need for federal laws, she said.

“Congress’s lack of fiscal discipline is responsible for debasing our currency,” she said, explaining her interest in decentralized digital assets. “Debt addiction is decimating savers’ return on their hard-earned dollar,” she added. Before winning her Senate seat in November, Mr. Lummis was Wyoming’s state treasurer and served four terms in the House.

Ms. Lummis opposed certifying the Electoral College vote last month, so the crypto evangelist may face political resistance to her positions, whatever their merits.



A plan to force the sale of TikTok’s U.S. operations to a group led by Oracle and Walmart may be shelved indefinitely by the Biden administration. (WSJ)

The activist hedge fund manager Jeff Ubben is reportedly seeking to raise up to $8 billion for a climate-focused investment fund. (Reuters)

Rivian, an electric-vehicle maker backed by Amazon and Ford, is said to be weighing an I.P.O. this year. (Bloomberg)

Politics and policy

There’s a debate about whether the meme-stock trading mania was stoked by the Fed’s easy-money policies — led by “JPOW,” as the Fed chair, Jay Powell, is known on message boards. (NYT)

Robinhood registered its new in-house lobbying team, which plans to focus on bills that could hurt its business model, like a proposal for a transaction tax on stock trades. (CNBC)


The game studio behind “Cyberpunk 2077” said hackers had seized the source code for its top games and other confidential information. (Business Insider)

“How Will Jeff Bezos Spend His Billions Now?” (NYT Opinion)

Best of the rest

Fox Corp. reported a rise in profit for Fox News and defended its flagship asset despite a $2.7 billion defamation lawsuit and challenges from far-right news rivals. (NYT)

Goodbye, Aunt Jemima. Hello, Pearl Milling Company. (NYT)

Make sure you turn off cartoon Zoom filters before important meetings, like a court hearing. (NYT)


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