Anzu Special Acquisition Corp. I (Nasdaq: ANZU) filed their definitive proxy on Friday for their extension vote to be held on February 9th. What remained in the definitive proxy was their ability to remove earned interest from the trust account to pay for any excise tax due to redemptions.

If you recall, Armada included the same language in its proxies, but subsequently amended its filing to remove the feature due to investor pushback. However, other SPACs have included language as well, just not as explicitly.  Instead, many are adding it as a risk factor stating they could “potentially” reduce the per-share amount.

For example, here is the language around the 1% excise tax typically found in the risk factor section:

A new 1% U.S. federal excise tax could be imposed on us in connection with future redemptions by us of our shares.

On August 16, 2022, the Inflation Reduction Act of 2022 (the “IR Act”) was signed into federal law which provides for, among other things, a 1% excise tax on the fair market value of stock repurchased by a U.S. corporation beginning in 2023, subject to certain exceptions. The excise tax is imposed on the repurchasing corporation itself, not its stockholders from which shares are repurchased. The U.S. Department of the Treasury has been given authority to provide regulations and other guidance to carry out, and prevent the abuse or avoidance of the excise tax. It is unclear at this time how and to what extent it will apply to SPAC redemptions and liquidations, but since we are a publicly listed Delaware corporation, we are a “covered corporation” within the meaning of the IR Act. Consequently, our Board believes that, absent additional guidance and unless an exception is available, there is a significant risk that this excise tax will apply to any redemptions of our public shares after December 31, 2022. The application of the excise tax to any redemptions we make could potentially reduce the per-share amount that our public stockholders would otherwise be entitled to receive upon redemption of their public shares.

That language appears to give sponsors some wiggle room, but it’s sure to give investors pause.

However, the most important feature about SPACs is their ability to amend terms as long as it’s put to a shareholder vote. As such, if a majority of investors are okay with sponsors removing funds from trust to pay for the excise tax, then the term moves forward. And more often that not, these votes are a bit of a rubber stamp.  But…there has been past precedent where investors have pushed back on terms they did not like.

For example, some of you may recall the Hunter Maritime deal where the team announced an extension tender offer for shares at $10.00 despite a significantly higher trust amount of roughly $10.125. At that time, there was concern that investors would opt to vote the deal down (HUNT intended to combine with NCF Wealth Holdings) to bust the deal and opt for the liquidation value instead. As a result, Hunter Maritime switched course and offered an increased trust value to investors to prevent a “no vote” and liquidation.

It remains to be seen what sort of pushback there will be on SPACs potentially using trust funds to pay for the excise tax, but the grumblings to tighten up this language are getting louder.