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This is not really a merger because the other company is a “blank check” holding company (a.k.a. SPAC). It has no operations, it just holds a bunch of money put

by pavlov 4y ago

This is not really a merger because the other company is a “blank check” holding company (a.k.a. SPAC). It has no operations, it just holds a bunch of money put in by investors who want to find a private company that wants to go public.

Raed667 4y ago
The fact this is not only legal, but common practice baffles me ...
- rekttrader 4y ago
  It’s a more transparent and less predatory than venture capital.
  - pavlov 4y ago
    Is it? VCs don’t raise money from “mom and pop and Reddit” retail investors, but SPACs have enabled insiders to sell stock at $10 that often ends up being worth less than $1 or even bankrupt just a year or two later. These often included a social media pump like the SPACs promoted by “SPAC king” Chamath Palihapitiya. However the companies that go public via SPAC are mostly VC-funded, so in that sense you’re right that they’re also profiting from the SPAC con by being able to dump their holdings in these companies that were not actually ready to go public.
    - MaxPengwing 4y ago
      Not this SPAC, https://www.avanza.se/aktier/om-aktien.html/1206860/acq-bure-spac https://www.avanza.se/aktier/om-aktien.html/1206860/acq-bure... It's mostly owned by Swedish Pension funds.
      - sam_lowry_ 4y ago
        Yubico is originally Swedish, this makes sense.
- bhawks 4y ago
  It's faster and cheaper, those are things that are generally considered valuable. Faster: the finance markets have been extremely tenuous the past 4 years between pandemics, supply chain crisis, world wars, inflation, and so on. An IPO requires 12 to 18 months of work / process before listing. SPACs can be done in a quarter or 2. In uncertain times it is much less risky to get the listing done fast. Cheaper: Startups pay much less in fees to investment bankers when going through SPACs, there is also less dilution for investors and employees and more valuation transparency. In traditional IPOs investment bank underwriters have some conflict of interest to get lower valuations to pass the 'pump' onto their high value clients or proprietary trading desk. Why should they benefit over the people who have literally built the company? While it is true that there is room to better regulate SPACs, there haven't been horrible abuses yet. It is also true that SPACs have not had the best returns for retail investors over the past few years however drawing a conclusion that this is due to SPAC usage versus the complex macro economic environment of recent years is very difficult.
  - gizmo 4y ago
    We’ve seen pre-revenue companies that promised flying cars and other obvious scams go public via SPACs. If you don’t consider that SPAC abuse your bar is a lot lower than mine. These are companies that had no chance of surviving the more serious road show due diligence that the likes of GS demand when they take startups public. Instead we saw popular podcasts push their SPACs on gullible retail investors, based on fuzzy concepts like disruption and TAM. Subsequently these SPACs lost 90% of their value and the insiders made bank. I hope to see jail sentences for the more shameless SPAC pump and dump players.
    - lotsofpulp 4y ago
      Index ETFs have been around for 15+ years now, and the advice is widely known that if you are an uneducated investor without inside information or some type of edge, you should stick to sub 0.15% expense ratio index funds. It is so easy nowadays that all you have to do is figure out the year you want to retire and buy that year’s target date fund and forget about it. If people want to gamble, then that is their problem.
- yellow_lead 4y ago
  Although it's not illegal, I thought exchanges used to delist companies for this. At least NYSE. Maybe someone has more insight
- Analemma_ 4y ago
  It's probably going to be made illegal, or at least a lot more heavily regulated, any day now. The SEC has indicated that they're not happy with how SPACs are being used to skirt IPO disclosures.
- aidenn0 4y ago
  I mean a few years back I was told by my accountant that I made too much money to contribute to a Roth IRA, but it was 100% kosher to open a traditional IRA and immediately convert it to a Roth IRA. The fact that this was legal also baffles me.
  - c22 4y ago
    When you convert your traditional IRA to a Roth you immediately owe taxes on the amount. Then, presumably, due to your income, you can no longer contribute to it. Makes sense to me.
    - aidenn0 4y ago
      It was a while ago, but IIRC you only owe taxes on the pre-tax contributions (which, in this case was $0). But I couldn't make a post-tax contribution directly to a Roth, just a post-tax contribution to a traditional, then convert... [edit] Some googling[1] implies my memory was mostly correct. 1: https://www.investopedia.com/roth-ira-conversion-rules-4770480 https://www.investopedia.com/roth-ira-conversion-rules-47704... See particularly the part about "backdoor
    - adrianmonk 4y ago
      The point is that there are income limits for this process: 1. Take N dollars of post-tax money. 2. Put it in a Roth IRA. But the same limits don't apply to this process: 1. Take N dollars of post-tax money. 2. Put it in a traditional IRA. 3. The next day, convert the traditional IRA to a Roth IRA. When you do the conversion, you only owe taxes on any additional earnings (not your post-tax contribution) during the one day that it was a traditional IRA. So the second procedure accomplishes almost exactly the same thing as the first one, but it legally gets around the limit designed to prevent rich people from getting Roth IRA tax breaks.
lordnacho 4y ago
Doesn't change the fact that your incentives as a public company are different. Also all the people who built the company in the first place will cash out. People can decide for themselves whether they think the product will become more or less secure from this.
simplotek 4y ago
> This is not really a merger because the other company is a “blank check” holding company (a.k.a. SPAC). This reads like a non sequitur. The corporate structure is irrelevant if there is a radical change affecting how strategic decisions are made regarding their products and their userbase.
JohnFen 4y ago
That's even worse.

by pavlov 4y ago

Raed667 4y ago

The fact this is not only legal, but common practice baffles me ...

rekttrader 4y ago
It’s a more transparent and less predatory than venture capital.
- pavlov 4y ago
  Is it? VCs don’t raise money from “mom and pop and Reddit” retail investors, but SPACs have enabled insiders to sell stock at $10 that often ends up being worth less than $1 or even bankrupt just a year or two later. These often included a social media pump like the SPACs promoted by “SPAC king” Chamath Palihapitiya. However the companies that go public via SPAC are mostly VC-funded, so in that sense you’re right that they’re also profiting from the SPAC con by being able to dump their holdings in these companies that were not actually ready to go public.
  - MaxPengwing 4y ago
    Not this SPAC, https://www.avanza.se/aktier/om-aktien.html/1206860/acq-bure-spac https://www.avanza.se/aktier/om-aktien.html/1206860/acq-bure... It's mostly owned by Swedish Pension funds.
    - sam_lowry_ 4y ago
      Yubico is originally Swedish, this makes sense.
bhawks 4y ago
It's faster and cheaper, those are things that are generally considered valuable. Faster: the finance markets have been extremely tenuous the past 4 years between pandemics, supply chain crisis, world wars, inflation, and so on. An IPO requires 12 to 18 months of work / process before listing. SPACs can be done in a quarter or 2. In uncertain times it is much less risky to get the listing done fast. Cheaper: Startups pay much less in fees to investment bankers when going through SPACs, there is also less dilution for investors and employees and more valuation transparency. In traditional IPOs investment bank underwriters have some conflict of interest to get lower valuations to pass the 'pump' onto their high value clients or proprietary trading desk. Why should they benefit over the people who have literally built the company? While it is true that there is room to better regulate SPACs, there haven't been horrible abuses yet. It is also true that SPACs have not had the best returns for retail investors over the past few years however drawing a conclusion that this is due to SPAC usage versus the complex macro economic environment of recent years is very difficult.
- gizmo 4y ago
  We’ve seen pre-revenue companies that promised flying cars and other obvious scams go public via SPACs. If you don’t consider that SPAC abuse your bar is a lot lower than mine. These are companies that had no chance of surviving the more serious road show due diligence that the likes of GS demand when they take startups public. Instead we saw popular podcasts push their SPACs on gullible retail investors, based on fuzzy concepts like disruption and TAM. Subsequently these SPACs lost 90% of their value and the insiders made bank. I hope to see jail sentences for the more shameless SPAC pump and dump players.
  - lotsofpulp 4y ago
    Index ETFs have been around for 15+ years now, and the advice is widely known that if you are an uneducated investor without inside information or some type of edge, you should stick to sub 0.15% expense ratio index funds. It is so easy nowadays that all you have to do is figure out the year you want to retire and buy that year’s target date fund and forget about it. If people want to gamble, then that is their problem.
yellow_lead 4y ago
Although it's not illegal, I thought exchanges used to delist companies for this. At least NYSE. Maybe someone has more insight
Analemma_ 4y ago
It's probably going to be made illegal, or at least a lot more heavily regulated, any day now. The SEC has indicated that they're not happy with how SPACs are being used to skirt IPO disclosures.
aidenn0 4y ago
I mean a few years back I was told by my accountant that I made too much money to contribute to a Roth IRA, but it was 100% kosher to open a traditional IRA and immediately convert it to a Roth IRA. The fact that this was legal also baffles me.
- c22 4y ago
  When you convert your traditional IRA to a Roth you immediately owe taxes on the amount. Then, presumably, due to your income, you can no longer contribute to it. Makes sense to me.
  - aidenn0 4y ago
    It was a while ago, but IIRC you only owe taxes on the pre-tax contributions (which, in this case was $0). But I couldn't make a post-tax contribution directly to a Roth, just a post-tax contribution to a traditional, then convert... [edit] Some googling[1] implies my memory was mostly correct. 1: https://www.investopedia.com/roth-ira-conversion-rules-4770480 https://www.investopedia.com/roth-ira-conversion-rules-47704... See particularly the part about "backdoor
  - adrianmonk 4y ago
    The point is that there are income limits for this process: 1. Take N dollars of post-tax money. 2. Put it in a Roth IRA. But the same limits don't apply to this process: 1. Take N dollars of post-tax money. 2. Put it in a traditional IRA. 3. The next day, convert the traditional IRA to a Roth IRA. When you do the conversion, you only owe taxes on any additional earnings (not your post-tax contribution) during the one day that it was a traditional IRA. So the second procedure accomplishes almost exactly the same thing as the first one, but it legally gets around the limit designed to prevent rich people from getting Roth IRA tax breaks.

lordnacho 4y ago

Doesn't change the fact that your incentives as a public company are different. Also all the people who built the company in the first place will cash out. People can decide for themselves whether they think the product will become more or less secure from this.

simplotek 4y ago

> This is not really a merger because the other company is a “blank check” holding company (a.k.a. SPAC). This reads like a non sequitur. The corporate structure is irrelevant if there is a radical change affecting how strategic decisions are made regarding their products and their userbase.

JohnFen 4y ago

That's even worse.