18 Comments
 

For what it's worth I'm selling mad CSPs on this. Management is so solid I wouldn't mind owning it at a lower entry and March premiums are phat.

 

the SPAC is formed based on an asset value of 10 and the stock is trading at 40. think about it like this, I have 10 in cash. I want to merge with something legitimately worth equity of 15. the company being taken public via SPAC is not dumb, they know that the SPAC sponsor will overpay to get the deal done because the SPAC sponsor gets a 20% promote without doing too much on a relative basis. so the SPAC sponsor and the company being taken public via SPAC decide that the company is actually worth equity of 18, and your giving 10 in cash to the existing owner provides you with a 55% ownership stake while the acquired entity retains a 45% ownership stake. your 10 has been instantly devalued to 8.25 by the deal being done at 18 instead of 15. then your 8.25 is devalued to 6.6 after accounting for the SPAC sponsor's 20% promote, there is possibly even more dilution. so if you buy at 40 before the deal closes you are essentially saying that you think that the SPAC sponsor and the company being taken public via SPAC were wrong about the value of the company by a factor of 6x, you believe that the company is worth 6x more than the SPAC sponsor and the company being taken public via SPAC decided that the company was worth. maybe I am a baby brain and I don't understand it well enough but I don't see how a dollar is now worth four dollars (or six dollars) because the dollar is going to be invested in something, there is a valuation tied to that thing that the dollar is being invested in. putting money in a SPAC close to NAV seems like a fairly asymmetric bet to have a small max loss with the optionality to sell off of a merger target announcement/rumor pop, but continuing to hold when the pre deal SPAC is trading at a 4x premium doesn't feel like an investment. I will admit that my understanding may be incorrect, this is the idea that I got though from the limited reading that I did though.

 
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famejranc

the SPAC is formed based on an asset value of 10 and the stock is trading at 40. think about it like this, I have 10 in cash. I want to merge with something legitimately worth equity of 15. the company being taken public via SPAC is not dumb, they know that the SPAC sponsor will overpay to get the deal done because the SPAC sponsor gets a 20% promote without doing too much on a relative basis. so the SPAC sponsor and the company being taken public via SPAC decide that the company is actually worth equity of 18, and your giving 10 in cash to the existing owner provides you with a 55% ownership stake while the acquired entity retains a 45% ownership stake. your 10 has been instantly devalued to 8.25 by the deal being done at 18 instead of 15. then your 8.25 is devalued to 6.6 after accounting for the SPAC sponsor's 20% promote, there is possibly even more dilution. so if you buy at 40 before the deal closes you are essentially saying that you think that the SPAC sponsor and the company being taken public via SPAC were wrong about the value of the company by a factor of 6x, you believe that the company is worth 6x more than the SPAC sponsor and the company being taken public via SPAC decided that the company was worth. maybe I am a baby brain and I don't understand it well enough but I don't see how a dollar is now worth four dollars (or six dollars) because the dollar is going to be invested in something, there is a valuation tied to that thing that the dollar is being invested in. putting money in a SPAC close to NAV seems like a fairly asymmetric bet to have a small max loss with the optionality to sell off of a merger target announcement/rumor pop, but continuing to hold when the pre deal SPAC is trading at a 4x premium doesn't feel like an investment. I will admit that my understanding may be incorrect, this is the idea that I got though from the limited reading that I did though.

It will pump to at least $60 if they announce deal

 

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