By Joseph A. Giannone
Goldman Sachs’ efforts to launch a new kind of “blank-check” company, Liberty Lane Acquisition Corp, got the cold shoulder both from hedge funds and the traditional stock buyers the bank hoped to win over, and the deal was pulled.
Liberty Lane, a special purpose acquisition company, was Goldman’s first foray into setting up the companies known as SPACs, and it was designed to prevent hedge fund investors from messing with the structure.
But even with Goldman’s endorsement, Liberty Lane’s unique terms made it a tough sell — especially in a SPAC market that has cooled in the past year.
Pricing for the planned $350 million deal was postponed twice, first last week and again on Tuesday, before the offering was shelved late on Wednesday.
Liberty Lane said in a statement “it has decided not to proceed with its proposed initial public offering at this time due to market conditions.”
SPACs are companies that raise money and hunt for takeovers. They pay a rich dividend and have to liquidate after a specified period — usually two years — if they do not identify an acquisition that wins shareholder approval.
Last year, Wall Street managed offerings for 60 SPACs, raising more than $12 billion, representing a quarter of domestic IPO activity. But recently the market has cooled off.
No blank-check company with a market cap over $50 million has priced since late February, according to Renaissance Capital, a Greenwich, Connecticut, firm that tracks the IPO market. Meanwhile, many of the blank-check shares issued over the past year have traded down.
Liberty Lane was designed to appeal to traditional buy-and-hold stock investors. The problem with most SPACs, analysts said, is that hedge funds and other traders could buy the shares when they traded below net asset value and then reject every deal.
This strategy guaranteed a rate of return for short-term traders but worked against the original purpose of the blank check, which was to give investors a chance to profit from smart deals.
So Goldman changed the terms of Liberty Lane to fend off short-term investors — management put up just 1 percent of capital and was to receive a smaller stake than normal. The new company had a smaller “trust pool,” the escrow account that holds IPO proceeds until a deal is completed.
Each unit was to contain one share and half a warrant, rather than the usual one share and one warrant, reducing potential dilution to shareholders. Management was supposed to receive just 7.5 percent of the company, below the usual 20 percent.
By making shares that are less attractive to traditional SPAC buyers, Goldman gambled it could be first to sell a blank-check offering to an audience of long-term investors.
“Goldman Sachs reached out to fundamental investors to fill their book, and there wasn’t enough interest at this moment in time,” said Michael Tew, co-founder of SPAC Research Partners in Palo Alto, California.
(Additional reporting by Dan Wilchins) (Editing by Gary Hill)