But there’s a larger trend happening….
- Investors have committed or are expected to commit to an additional purchase of $5.0 million of CHAC shares.
- Cornix Advisors, LLC, an affiliate of Chardan, has entered into a securities purchase agreement with a current shareholder of CHAC to purchase $2.0 million of CHAC shares at $10.35 per share.
- Current shareholders of BiomX are expected to enter into similar share purchase agreements for $3.0 million of CHAC shares, also at $10.35 per share.
- The minimum closing condition was increased from $50 million to $55 million of cash in CHAC’s escrow trust account available at closing.
- The backstop agreement pursuant to which Chardan Securities, LLC agreed to purchase up to $2.5 million of CHAC shares in the event that the aggregate investment amount is less than $50 million has been amended to reflect a new minimum aggregate investment amount of $55 million.
- The agreement of Chardan Investment LLC to cancel up to 500,000 CHAC shares (founders shares) in the event that the aggregate investment amount is less than $70 million was terminated.
- CHAC and BiomX have agreed to extend the Outside Closing Date (as defined in the Merger Agreement) to November 30, 2019 (previously, October 31, 2019).
However, there are a couple of important things to note:
The Outside Closing Date
Chardan is currently scheduled to hold their shareholder vote on October 23rd, but the change to the Outside Closing Date from October 31st to November 30th isn’t necessarily concerning since it was actually already in the definitive proxy. It was just worded a little differently. The proxy stated that the Outside Closing Date would “automatically” be extended to November 30th if the closing has not occurred on or prior to October 31, 2019. The new language now officially moves the Outside Closing Date to November 30th. Presumably to officially give a little cushion of extra time since closing doesn’t always happen immediately post-vote. Lots of things need to happen before a close, like Hart-Scott Rodino Antitrust approval, etc.
The Trend of “Let’s Make a Deal”
However, the additional commitments with investors to purchase CHAC shares at $10.35 from other investors ($2.0 million of which is already set in an agreement with Cornix, and the other $3.0 million should be forthcoming), is pointing to a larger “Let’s Make a Deal” trend. This trend first started with Chardan Healthcare (for the most part) and we’re now seeing it as well in GigCapital, Health Sciences, and potentially Tiberius (they haven’t filed their Super 8-K yet, so it’s still not totally clear). To be sure, SPAC Investors are perfectly fine with all of this maneuvering as long as it results in a share price that trades above trust value. But the concern is, are we training investors to hold on to (or accumulate) their shares and/or rights in the hopes of “making their own deal” with a SPAC at a better price than what any other investors could get? Could this also eventually turn into a different form of Greenmail?
To be clear, Cornix, an affiliate of Chardan’s, will be purchasing the shares from a current shareholder of CHAC at $10.35, whereas current trust value is ~$10.17 and the share closed today at $10.30. Gig currently has five non-binding LOIs and forward purchase agreements with it’s share and rights holders. These are pretty good deals, if you can get one. Which is the point. Will investors be actively searching for these types of situations going forward? It also has the potential to distort the market for investors who do not have access to these types of arrangements. Again, this is not problematic for SPAC investors as long as it results in the share price trading above trust value, but it also gives a false sense of where these companies would actually be valued. And that seems sort of problematic for fundamental investors. If they get burned enough times post-closing, they’re not going to want to play anymore. And THAT is ultimately not good for the SPAC market….