July 12, 2023
Nasdaq’s New De-SPAC FAQ
In the first week of July, Nasdaq published four FAQs focused on SPACs. The FAQs address the following topics:
– When a SPAC falls below the Publicly Held Shares, Market Value of Publicly Held Shares, Market Value of Listed Securities and/or the Shareholder requirements due to shareholder redemptions
– Information required when a SPAC holds a meeting to extend its deadline to complete a business combination
– How Nasdaq determines compliance with the price-based listing requirements in a de-SPAC where the target is publicly traded
– Whether SPACs must hold annual meetings
This Loeb & Loeb blog notes that one of the new FAQs will complicate transactions involving OTC-quoted target companies looking to use a SPAC to move to Nasdaq. Here’s the full FAQ (#1863):
How does Nasdaq determine compliance with the price-based listing requirements in the case of a SPAC business combination where the target company is a publicly traded company?
In the case of a transaction where a SPAC acquires 100% of a publicly-traded target company or is acquired by a publicly-traded target company, Nasdaq generally relies on the trading price of the publicly-traded target company (adjusted for any applicable exchange ratio and for the additional cash provided by the SPAC) to determine compliance with the price-based listing requirements.
The blog goes on to provide the following example and takeaway:
For example, under this FAQ, if a target’s stock is trading at $1.00 per share and it will be converted into the SPAC’s stock on a one-for-one basis, Nasdaq will assume that the trading price of the post de-SPAC company’s stock is $1.00 per share, regardless of valuation of the target, fairness opinions, or the trading price of the SPAC’s stock. In the scenario I just gave, the company would not be able to meet the minimum share price requirement under Nasdaq’s initial listing rules.
Companies looking to do a de-SPAC involving a publicly traded company will need to ensure that conversion ratios for the publicly traded company’s stock will result in the combined company meeting Nasdaq’s initial listing requirements.
– Meredith Ervine