And a possible clean-up of the Rights.
GigCapital, Inc. (GIG) announced earlier this afternoon that it had begun its “de-SPACing” process via a press release and then later, an 8-K filing. It’s a little curious since most SPACs do not formally announce a “de-SPACing” and for the most part, the word “de-SPACing” isn’t even a real term. It’s basically just an informal, short-hand way of saying you’re trying to effect a merger or close a business combination. But okay, let the de-SPACing commence! Forthwith!
However, what was even more curious about the press release was found in the second half which stated that:
“…the Company may choose to engage in various activities such as raising equity in conjunction with the consummation of the Business Combination, or have the post-combination company increase its borrowing capacity to provide it with additional liquidity in order to help it drive growth. In this regard, and as part of the de-SPACing process, the Company is currently evaluating different capital scenarios, including regarding borrowing, for the purposes of enhancing its current capital structure, and strengthening its future liquidity and financial position, including with regard to its outstanding Rights.“
That was the real meat and potatoes, not the announcement of the start of the de-SPACing process. If we’re going to try and read the tea leaves, the purpose was to let everyone know Gig wants to clean up their Rights ahead of the shareholder vote. And with good reason. As we’ve seen, once those Rights Shares are delivered to accounts after a vote with heavy redemptions, they create a significant amount of selling pressure and the share price tumbles pretty quickly.
As a reminder, Gig has 14.375 million Rights Shares, so if Gig were to tender for those Rights, even at let’s say a $1.00, a $14.4 million purchase is not terribly expensive in the grand scheme of things. However, if Gig is already in discussions for a new PIPE to replace anticipated lost cash due to redemptions, perhaps an investor made it a condition that Gig needed to clean up those Rights before they would invest. After all, Black Ridge (AESE) had Rights and they are the most recent example of what Rights Shares can do to a share price post-vote. Right now, Gig’s Rights are trading around $0.50, which would imply Rights Holders are valuing this deal at a $5.00 share price (Rights are 1/10), so any new PIPE investor would want to keep that in mind, for sure.
Still…today’s press release is strange. Maybe we’ll get more information shortly on what Gig actually has in store, but for now, all signs point to a backstop in some way, shape or form. Stay tuned for any further updates.