Pure Acquisition Corp. (PACQ), in a not totally unexpected move, filed a preliminary proxy this evening for an October 10th shareholder vote to extend to February 17, 2020. However, what was unexpected (and also found within the proxy) was the stated intention to commence a tender offer for their outstanding warrants at $1.00…now. As in, they intend to file a tender offer document following the filing of today’s preliminary proxy. If you recall, per PACQ’s IPO prospectus, the intention was always to tender their warrants at $1.00, however, its far more typical to commence a tender AFTER the announcement of a business combination. The fact that they intend to tender the warrants now, without an announced transaction, is surprising. So, could this mean PACQ will be announcing a deal imminently? Actually, probably not…more below.
But before we get to the Tender Offer, let’s first discuss the details of the extension. At the vote, PACQ will be asking for an additional four months, which would make their new deadline February 17th, 2020. Additionally, PACQ’s sponsor, HighPeak, will be contributing $0.033 per share to the trust for shareholders that do not redeem at the extension vote. That means, if PACQ needs to use all four months, shareholders can expect an additional $0.132 total. This is another example of a very straightforward extension contribution with an attractive $0.033 per share. This is the way shareholders like it. Nothing complicated, no game theory.
Now going back to the Tender Offer, it turns out they don’t have to have an announced deal in order to tender for the warrants at all. By way of explanation, the IPO prospectus on page 13 states:
“Our sponsor has committed to offer or cause an affiliate to offer to purchase, at $1.00 per public warrant, our outstanding public warrants in a tender offer that would commence after our announcement of an initial business combination and occur in connection with such business combination. If we are unable to close our business combination within the allotted time, our sponsor will purchase or cause an affiliate to purchase any outstanding public warrants for $1.00 per public warrant at the same time as we redeem our public shares.”
HOWEVER, the paragraph below that also states this:
“Our sponsor has also committed to offer or cause an affiliate to offer to purchase, at $1.00 per public warrant (exclusive of commissions), the outstanding public warrants in a tender offer that would commence after our filing of a proxy statement or information statement with respect to a proposed amendment to our amended and restated certificate of incorporation that would affect the substance of timing of our obligation to redeem 100% of our public shares if we do not complete a business combination within 18 months from the closing of this offering. Any such purchases would occur in connection with the effectiveness of such amendment.”
This is exactly what today’s proxy was about. PACQ is going to need to extend (via a proxy vote) since they’re running out of time. And since they will be amending their certificate of incorporation, changing their timeline from 18 months to 22 months, they can tender their warrants.
So now you’re probably thinking, “Without an announced combination to review, the calculus becomes would I rather tender now and collect $1.00? Or, wait and hope the announced transaction is good enough to push the value of the warrant higher than $1.00.” Tendering now seems attractive since a bird in the hand is worth two in the bush. HOWEVER, not so fast….you’re actually going to get two shots at this bird because even though PACQ is going to tender now without an announced deal, they’re also going to tender AGAIN when they do finally announce a deal. Yep, you can sit this tender out and wait for the next round and still get $1.00 (see Page 26 of today’s proxy).
However, what all of this does tell us is that PACQ is probably not going to announce a deal any time soon. If anything, it won’t be until after the vote. After all, having to do two tenders (one at extension and one at announcement) is not ideal. If they could have announced now and gotten everything done in one fell swoop, they probably would have preferred that. Although, you could make the case that PACQ is using this tender to clean up as many warrants as possible in this round to aid in the negotiation with any targets. However, that seems like a pretty big gamble with so little time left. The least complicated answer seem more likely. PACQ simply ran out of time and as long as they’re going to extend, might as well see if any warrant holders want to tender now.