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Opinion
Matt Levine

SPAC Investors Don’t Love Lucid

Also Infinity Q, GameStop, WeWork, fantasy soccer and Long Blockchain.

A special purpose acquisition company is a blank-check company that raises money from investors in an initial public offering, puts the money in a pot, and uses the pot to buy a stake in some existing private company, merging with that company (in a “de-SPAC merger”) and taking it public. 

Traditionally the SPAC does its IPO at $10 per share; if it sells 100 million shares then it will have $1 billion in its pot. It will go out and find a private company and negotiate with it, and the negotiations will be over how big a stake the SPAC gets for its money. The SPAC has a billion dollars; it will go to the private company and say, for instance, “we think you are a $4 billion company, if we give you $1 billion you’ll be a $5 billion company, so our $1 billion should buy 20% of your stock, so after we merge you should have 500 million shares outstanding of which our SPAC shareholders should own 100 million.”  And the company says “no we are a $9 billion company, if you give us $1 billion we’ll be a $10 billion company, so your $1 billion should buy 10% of our stock, so after we merge we’ll have 1 billion shares outstanding of which your SPAC shareholders should own 100 million.” And then they go from there and hopefully find a compromise price everyone can live with.