As part of Nebula Acquisition Corp.’s (NEBU), announced deal this morning with Open Lending LLC, they included their intention to tender their warrants for $1.50 per whole warrant.  And further to that, it said that if you do tender, you MUST vote FOR the warrant amendment proposal which reduces the term of any and all remaining NEBU Warrants to expire upon the consummation of the Merger.  AND included in the Business Combination Agreement it stated that in order for the warrant amendment to be passed, 8,250,000 warrants of the 9,166,666 public warrants need to be validly tendered or the Seller can terminate the agreement.  Which seemed like a really high threshold to meet (90%).   Except, it’s not 90%.  It’s only 50%.

Say what now? Yes, that’s right.  If you look at Nebula’s prospectus (page 56) it states the following:

“The warrant agreement provides that the terms of the warrants may be amended without the consent of any holder to cure any ambiguity or correct any defective provision, but requires the approval by the holders of at least 50% of the then outstanding public warrants to make any change that adversely affects the interests of the registered holders of public warrants.”

That means that even though the business combination agreement stipulates a 90% threshold, it’s superseded by the warrant agreement which says that you need only 50% approval.  And for further clarification, that’s not 50% of whoever participates at the vote, but 50% of the total public warrants.  So really, Nebula needs 4,583,334 warrants to vote “Yes” on the amendment and it passes.

So now we have a bit of game theory happening again.  Regardless of however a warrant holder WANTS to vote, they have to game out how they think everyone else will vote. If you vote No, but more than 50% vote Yes, you not only do not get the $1.50, but your warrants expire at combination close. Not ideal.  Will investors tender based on the surety of $1.50 per warrant which is better than no warrant?  Hard to say.  Keep in mind that investors do talk to each other…the question is, will 50% of them have a chat?

Regardless, the 8,250,000 warrant threshold language seems like a real nightmare for the bankers who are probably having to clarify this all over the street today.  Especially since the warrants are currently trading around $1.70, far above the $1.50 tender price.  Stay tuned for further developments