And it’s the third SPAC to file with a 1/4 warrant…

This evening, Churchill Capital Corp. III (CCXX.U), filed for a $600 million IPO and surprise, surprise, we have our third 1/4 warrant SPAC.  However, including a 1/4 warrant in the unit wasn’t originally the plan.  Nope.  It was actually 1/10th of a warrant.  Yes, you read that right.  But before we get there, let’s review the team.

Churchill III, will once again be led by Michael Klein, as CEO, President and Chairman of the Board. Mr. Klein will also be joined  this time by Jay Taragin, as CFO.  Mr. Taragin is also currently the CFO of M. Klein and Company, the global strategic advisory firm founded by Michael Klein in 2012.  Churchill III’s board is comprised of the same directors as found in Churchill II, but with Jeremy Paul Abson, as an additional director. Mr. Abson is currently the President and CFO of TBG AG, named for the Thyssen-Bornemisza Group, which is an asset manager based in Zurich, Switzerland.

Additionally, Churchill III will be employing the “Operating Partners” strategy once again, which, for those who don’t remember from Churchill II, it was a way for the Churchill team to broaden their target search by utilizing, “former senior operating executives of leading S&P 500 companies across multiple sectors and industries, including consumer, industrial, materials, energy, mining, chemicals, finance, data, software, enterprise technology, and media.“

These Operating Partners are incentivized to find a transaction by not only investing in the sponsor, but they will be eligible to share in a portion of the appreciation in founder shares and private placement warrants, provided that Churchill II successfully completes a business combination.  But that’s not all, because… “The Operating Partner that takes on a substantial senior executive or operating role at the acquired company, on a post-business combination basis, will acquire additional founder shares from M. Klein and Company and will have a vesting schedule that is highly aligned with stockholder interests by requiring value creation for initial stockholders.”

But hang on…there’s more…

Because in Churchill III, we also now have “Strategic Partners” as a complement to the Operating Partners. These Strategic Partners are “selected leading investors and financing providers” that will assist M. Klein and Company in evaluating potential acquisition targets. Plus, they can also invest in the sponsor (just like the Operating Partners), thereby sharing in the appreciation of founder shares and private placement warrants.

So basically, Michael Klein has built one, big, SPAC-target searching, machine.

Nonetheless, let’s finally get to the good stuff…what about this SPAC’s structure.  Well, the headline terms are that it’s a 100% in trust, 24 months duration (+ 3 months with LOI or definitive agreement on file), and a 1/4 warrant deal. However, as mentioned above, if you look at the DRS filing, or Draft Registration Statement, Churchill III originally wanted to ask for a 1/10th warrant.  This was changed to a 1/4 warrant for the current filing, but the mere idea of a 1/10 warrant shows you just how quickly the terms environment can change in SPAC Land.  Only just this past Monday, this was discussed in greater detail in the SPACInsider newsletter where it was speculated that given the abundance of high quality deals and influx of more fundamental-type investors, could a SPAC without a warrant at all (just a share) be on the horizon?  A drafted 1/10th of a warrant means we’re a lot closer to that reality now.  Traditional SPAC investors just let out groan.

And to really hammer home the point that this deal is not intended for yield players, Churchill III will be able to remove $1 million per year of interest to fund their working capital.  The current 6-month T-bill rate is only ~1.57%, so the total interest earned will not be that great.  However, if Churchill III can also remove $1 to $2 million of interest, that means yields are going to be very, very low.  In fact, lower than the 10-year note, which in this case would be the more attractive choice for the yield investor.

Plus, the Sponsor at-risk capital purchase of warrants is being purchased for only $1.00 per warrant, which gives the 1/4 warrant that public investors will receive, a value of ~$0.25. This is in contrast to Gores IV’s 1/4 warrant where the Sponsor’s purchased their at-risk warrants at $2.00, for a public 1/4 warrant value of $0.50. Oh, and there’s no Crescent Term either.

In summary, Churchill III’s structure, similar to Gores IV and Conyers Park II, is crafted for the long-only crowd but they’ve kicked it up a notch.  This is absolutely meant to be sold to investors that want to bet on a company, not a yield.  And it’s still going to sell through the roof.  In fact, a big up-size is not out of the realm of possibility here.  Demand for SPACs has never been higher and with so many successful brand name SPACs trading very, very well (Churchill I, which is now Clarivate, or CCC, closed today at $20.75), these teams can command these terms.  Question is….which is the team that will try for the 1/10th warrant or zero warrant next?

Look for Churchill III to price the week of February 10th, most likely on the 13th.  But also don’t be surprised if this means we get an announcement shortly regarding Churchill II’s acquisition.  It’s a lot easier to move on to #3, once you’ve squared away #2.

Summary of terms below: