Friday evening, Alussa Energy Acquisition Corp. (ALUS.U), filed their $225 million SPAC for IPO, focusing on the energy sector, and more specifically, oil and gas exploration and production (“E&P”) or midstream businesses. Alussa will be led by James Musselman, as non-Executive Chairman of the Board of Directors, and Daniel Barcelo, Chief Executive Officer, President and Director. Mr. Musselman founded Dallas-based Caelus Energy, LLC, and Mr. Barcelo, previously, was a Portfolio Manager at Moore Capital Management. Additionally, Nick De’Ath, the Chief Technology Officer of Alussa, has over 45 years management experience in the Upstream Oil and Gas Industry
So looking at this team, we have an experienced operator (Musselman), an investor/analyst (Barcelo) and a geologist (De’Ath). All the key ingredients for finding a successful energy acquisition. However, there is this over-arching question of whether energy is still a good sector within which to be searching for a SPAC combination. I’m not an energy sector analyst, so take what I’m about to say for what it’s worth, but energy is currently an out-of-favor sector and in general, out-of-favor sectors do not perform well day-one of trading. And regarding the sector, real energy analysts will probably have their opinions, one way or the other, but if the sector rebounds, this team has all the ingredients for a successful acquisition. The issue for this team is, how do you market a SPAC in a “currently” (emphasis on currently) out-of-favor sector?
Well, if we look at the structure, there are a two items that might change the conversation. For one, Alussa has an indication of interest for $11.25 million of units in the IPO at $10.00. Plus, they’re bringing back an oldie, but a goodie – a Rule 10b5-1 program for the sponsor to purchase 4,500,000 warrants at $0.75. For those who don’t remember the SPACs of yore, it was, at one point, quite common for SPACs to utilize a 10b5-1 plan. And for those unfamiliar with a 10b5-1 plan, they are a passive investment scheme (plan holders relinquish direct control over transactions), which provide a mechanism for companies and corporate insiders to purchase and sell securities of such company when they have Material Non-Public Information (MNPI). In the case of prior SPACs, they were utilized to purchase shares ahead of a vote. To be clear, not all of Alussa’s warrants will be purchased ahead of the vote, just 4,500,000 of the 11,250,000 and at a price not to exceed $0.75. However, that does mean that if your half warrant “could” be purchased at price of up to $0.375 (half of $0.75), that means your unit is now worth north of ~$10.10. By way of explanation, If we look at the last 1/2 warrant deal to split (and trade), New Providence Acquisition Corp. (NPA), which split on Friday, the common is trading at $9.77 and the warrant at $0.65 (it’s a 1/2 warrant structure, so a 1/2 = $0.325), therefore, the total unit = $10.095, whereas Alussa, using $9.77 for the share price, would be $10.145 ($9.77 + $0.75/2). So using NPA as a base example, then Alussa is offering $0.05 more value. However, not every half warrant deal splits and trades to $9.77. The range could be higher or lower, but the share generally trades in the $9.75 to $9.80 range lately. Additionally, not everyone will want to sell their warrant at the $0.75 price, but there’s a good chance a lot of warrant holders will sell SOME of their warrant position. After all, why not and still keep some as an option?
With all that being said, the terms are thus: 100% in trust, 24 months to find an acquisition, 1/2 warrant. This is a new team, and while they have tier-one energy credentials, a 1/2 warrant seems appropriate. Additionally, the 10b5-1 plan will make this deal an easy upfront sell to SPAC investors so it should IPO quite easily. However, whether the energy sector will make for a good SPAC combination is far less easy to predict. To get to the root of the matter, do you think the world will be using more or less oil 5-10 years from now, regardless of how good the IPO looks today?
Summary of terms below: