This evening, in a very surprisingly timed announcement, Graf Industrial Corp. (GRAF), announced it is in “negotiations” to combine with a polypropylene recycling company. GRAF is currently scheduled to hold an extension vote on April 16th, to extend to July 31st, 2020, so this is a teaser for shareholders who are considering redeeming at next week’s vote. Keep in mind that GRAF is NOT offering any contribution to trust in order to extend three and a half months.
In light of this announcement being only regarding negotiations, not a definitive agreement, there isn’t too much information provided just yet. However, what we do know is that the intended target offers a “ground-breaking, patented recycling process, developed and licensed by a major multinational, separates color, odor and any other contaminants from plastic waste feedstock to transform it into virgin-like resin. The Target’s licensed process creates an opportunity to support closing the loop in the reuse of recycled plastics while making recycled plastics more accessible at scale to companies desiring to use a sustainable, recycled resin.“
Additionally, the press release goes on to say, “The Target’s revolutionary process holds the possibility to solve for the ongoing problem of recycling the 150+ billion pounds of PP produced every year, which has averaged a 5% rate of growth over the last five years, according to the Target. Consumer demand, combined with major multinational sustainability commitments, reinforced by new stringent recycled content restrictions globally, have led to substantial interest in, and demand for the Target’s innovative capabilities. The Target has been recognized by the American Chemistry Council for its innovation in plastics recycling and has been recognized by a weekly news magazine with amongst the world’s largest circulation as one of its top 100 inventions of the year.“
As far as the the actual transaction details, GRAF would acquire 100% of the Target, with GRAF issuing new GRAF common stock to existing Target shareholders, who would be rolling 100% of their equity interests. No cash would be paid to existing Target shareholders, who are expected to retain a majority equity position in the combined company. The Target’s current Chief Executive Officer would continue to lead the combined company as CEO.
So, is this enough information dangled in front of shareholders to keep them from redeeming at next week’s extension vote? In ordinary times, most likely. However, we are not currently living in ordinary times. So not offering a contribution to trust is a bit risky. However, as it currently stands in the negotiations, GRAF will not be paying any cash to existing Target shareholders which makes things a little easier if there are significant redemptions (Presumably. We really don’t know all the details yet). However, since we don’t yet have a full look at a sources and uses table or what GRAF is paying for the transaction, it’s going to be challenging for investors to fully grasp the proposition. The sector is certainly intriguing though.
All told, this is a challenging time to announce a combination, or “negotiations” with a potential combination. In the best of times, limited information is not ideal, but considering the current climate is probably one of the most challenging environments for SPACs in recent history, the timing is not ideal. But….when the clock is ticking, you can’t wait forever. Might as well try. Especially when an extension vote is on the line.