Looks like the Delaware Courts are going to be busy this summer…
Dune Acquisition Corp. (NASDAQ:DUNE), which previously launched a lawsuit against its combination partner TradeZero, while Dune’s Board also recommended shareholders vote against this deal, is nonetheless rejecting TradeZero’s termination of their merger agreement.
Yep, this is shaping up to be a doozy. But as a refresher, back in April, Dune filed a lawsuit in Delaware court alleging that its combination target TradeZero, “fraudulently induced” it into entering the merger and has “materially breached” that agreement, causing “irreparable injury” to Dune. Subsequent to that, Dune’s board of directors unanimously determined the business combination with TradeZero “is not advisable or fair to, or in the best interest of, Dune and its stockholders“.
However, this deal had an Outside Date of July 12th, where either side had the ability to walk away from the merger (subject to a number of conditions). On July 13th, TradeZero sent Dune a termination notice alleging that “Dune has not made any efforts to pursue completing this transaction in several months…“. Which, regardless of whether Dune has made an effort or not, TradeZero is probably not that thrilled to go public with a SPAC that has just alleged they committed fraud (Shades of the Elon Musk/Twitter saga here). So, once TradeZero hit that Outside Date, they probably thought they could put this behind them.
Nonetheless, in response to TradeZero’s termination notice, Dune played the Uno Reverse Card and sent a letter back basically saying, “no, you’re the ones in breach! And we reject your termination notice and this deal is still on!”
A couple of important items to note here. The first, is that TradeZero’s other claim to termination is that Dune is in breach of the minimum cash closing condition of $80 million. If you recall, Dune held an extension vote on June 14, asking shareholders to extend its deadline a whopping 18 months to December 22, 2023. At that vote, $160.7 million was redeemed, leaving just $11.8 million in Trust. Clearly well below the $80 million this deal needs to close. However, Dune’s response is that the condition doesn’t need to be satisfied at this time. Yes, in the future, but not right now.
Dune further goes on to say that it has made concerted efforts to work collaboratively toward the consummation and, “went so far as to obtain an extension of its expiration date” to complete the deal. However, asking to extend a full 18 months is an incredibly long amount of time for a SPAC. In fact, in going back through our data, we’ve never seen a SPAC ask to extend that long before in one shot. Did Dune ask for 18 months because they thought it would take that long to close TradeZero? Even with an Outside Date of July 12, 2022? The optics on it instead look more like they were going to use the time to look for a new target, and then announce that deal and close.
At any rate, despite Dune previously alleging fraud, and its board recommending a no vote for this combination, Dune goes on to state that it, “demands that TradeZero withdraw the Purported Termination Notice immediately and take all necessary steps to consummate the transactions contemplated by the Merger Agreement.”
The lawyers on both sides of this deal could be in for a real fight. The good news is, 93.1% of shareholders are already out of this transaction since they previously redeemed. And the very few remaining shareholders can always redeem at any future votes, i.e., none of the public shareholders will be hurt in this mess.
Be that as it may, the Delaware courts are looking like the hottest place to be this summer and there are certainly a number of parties sweating it out there. We’ll keep an eye on any future filings.