1 Year Later: SPAC Returns

Last January we (Hedge Fund Solutions) wrote an article for TheStreet.com's RealMoney that discussed the no-downside risk of investing in Special Purpose Acquisition Companies - SPACs.  In the piece we highlighted 19 SPACs trading at an average 5% discount to their trust value.  All 19 companies needed to buy an operating company within 12 months.

(quick recap: Funds for SPACs - commonly known as blank check companies - are raised through an IPO.  Proceeds are held in interest-bearing trust accounts until a target company is identified.  If a deal is not consummated, usually within 24 months of the IPO, shareholders are entitled to get back the trust value + interest.  If a deal is consummated, but the shareholder doesn't like the looks of it, they are still entitled to redeem their shares for the entire trust value + interest. i.e. no-downside risk.)

Since we focus our investment research exclusively on activist investments, we analyzed each SPAC where we knew an activist investor had taken a sizable ownership position.

(additional recap: If more than 20-30% of shareholders vote against the deal, the SPAC is usually liquidated.  Hence the activist investing angle.  Activists looking for a faster return would buy a blocking position in a SPAC trading at a significant discount to trust and demand the fund liquidate sooner rather than later.)

Here are the summarized results for the 19 SPACs we highlighted in the article: 

December 2008
Average number of days to liquidation: 260
Average discount to trust: 5%

December 2009
# Deals Completed: 4
# SPACs liquidated: 13
# Still Pending: 2

Average return on investment: 7.6%
Annualized return on investment: 9.7%
Return on investment where activists held positions: 7.0%
Annualized return on investment where activists held positions: 9.0%

Conclusion:  Who knew the market (SPY) was going to return 28% in 2009?  Although the SPACs we highlighted didn't fare as well, only returning an annualized 9.7%, since there was zero downside risk associated with making the investment, the return - adjusted for risk (i.e. 0) still looks pretty appealing! 
Download the summary analysis here.

Ian Manchel, who was an analyst with HFS in 2008 & 2009, provided the analysis for this update.

The Altman Group: Governance Compendium

The proxy solicitation firm The Altman Group recently put together their first edition of "Governance Compendium Series".  The contributions are very good and cover a wide range of topics.  The .pdf can be downloaded from the company's website.

Below is a list of articles included in the publication:

Practical Solutions to Improve the Proxy Voting System.  A proposal submitted to: The Securities and Exchange Commission
By Kenneth L. Altman, President, The Altman Group

Momentus Changes Ahead for U.S. Corporate Governance
By Carol Bowie, RiskMetrics Governance Institute, Ted Allen, Risk&Governance Weekly Editor

The Future of Corporate Governance
By Richard Ferlauto, Director of Corporate Governance and Public Pension Programs for the American Federation of State, County and Municipal Employees (AFSCME)

A Delaware Lawyer's Perspective on the Brave New World of Proxy Access, Say on Pay, De-Staggered Boards (etc.)
By John F. Grossbauer, Partner, Potter Anderson & Corroon, LLP.

Proactive Communications in a Shifting Landscape: Navigating the Changes in Corporate Governance and Shareholder Activism
By Jeremy Jacobs, Managing Director, and Joele Frank, Managing Partner, Joele Frank, Wilkinson Brimmer Katcher 

Shareholder Proxy Access and the Balance of Power in Corporate Governance
By Roy J. Katzovicz, Chief Legal Officer, Pershing Square Capital Management, L.P.

The System Isn't Broken: A Legislative Parade of Horribles
By Martin Lipton and David Katz, Partners at Wachtell, Lipton, Rosen & Katz and Laura A. McIntosh, A Consulting Attorney to the firm 

Keep Calm and Carry On: US Corporate Governance Reform Needs a Push, Not a Push Back
By Anne Simpson, Senior Portfolio Manager, Global Equities; Head of Corporate Governance, CalPERS 

Developments in Proxy Contests and Corporate Governance
By Steve Wolosky and Adam Finerman, Olshan Grundman Frome Rosenzweig & Wolosky LLP

Governance Compendium Series, Volume 1

Poison Pills Revisited

Eduardo Gallardo, a Corporate Partner in Gibson Dunn's  NY office (and one of our regular contributors), recently co-wrote an article titled, "Poison Pills Revisited".

The article examines a 7-year trend in which corporations have "voluntarily" terminated many of their takeover defenses.

"During the last decade, activist shareholders and corporate governance groups have been fairly successful in pressuring companies to voluntarily surrender a number of anti-takeover defenses, most notably the use of staggered boards and shareholder rights plans (also referred to as "poison pill")."

The piece goes on to discuss the recent movement by corporate boards to revisit takeover defenses in light of low market valuations and vulnerabilities to hostile advances.

"Notwithstanding recent improvements in some financial indicators, the recent global financial turmoil has left many companies with still low market capitalizations and vulnerable to hostile bids.  This has prompted many companies to reevaluate the status of their takeover defenses, particularly as activists broaden their agenda to include calls for an expansion of shareholders' rights to call special meetings and to act by written consent."

Finally, the article touches on the tension in Delaware Law as it relates to installing a poison pill defense after a corporation receives an unsolicited takeover bid.  It concludes with an example of the recent litigation between Koninklijke KPN N.V. and iBasis following iBasis's implementation of a shareholder rights plan to block KPN's tender offer.  Although the litigation was settled when KPN increased their offer from $1.55 per share to $3.00 per share,  Gallardo and his co-authors suggest that,

"It might not be long before the Delaware courts provide additional guidance given the increase in hostile M&A activity and the signaling by Delaware jurists and commentators that the time is right to bring further clarity to this subject."

Click here to read Gibson Dunn's entire Poison Pills Revisited article.

December Activist Investments - 46 Companies Targeted

Below is a summary list of the 46 companies targeted by 51 shareholder activists during December.

This information was extracted from Hedge Fund Solutions' Catalyst Equity Research Report(TM), a free in-depth weekly research on activist investments. 

This report is sponsored by a number of firms with expertise in the activist investing space.

Investment Banking: 
SSG Capital Advisors 

Legal Advisers:

Olshan Grundman Frome Rosenzweig & Wolosky

Schulte Roth & Zabel 

Proxy Solicitors:

Georgeson

Innisfree M&A

MacKenzie Partners

Laurel Hill Advisory Group

The Altman Group

Ticker	Company	Investor
ALCO	Alico Inc.	Atlantic Blue Group
ALOG	Analogic Corporation	Ramius Capital
ALOY	Alloy Inc.	SRB Management
BASI	Bioanalytical Systems Inc	Peter Kissinger
CNBC	Center Bancorp	Lawrence Seidman
COBR	Cobra Electronics Corp	Timothy Stabosz
CTO	Consolidated Tomoka Land Co	Wintergreen Advisers
DGTC.OB	Del Global Technologies	Steel Partners
DHT	DHT Maritime Inc	MMI Investments
DPTR	Delta Petroleum Corp.	Tracinda Corp
DVD	Dover Motorsports inc	Marathon Capital
ENZN	Enzon Pharmaceuticals inc.	DellaCamera Capital Management
EVOL	Evolving Systems Inc.	Karen Singer
EZEN.OB	Ezenia! Inc	North & Webster
EZEN.OB	Ezenia! Inc	Hummingbird Management
FACT	Facet Biotech Corp	Biotechnology Value Fund
FACT	Facet Biotech Corp	Baupost Group
FFHS	First Franklin Corp	Lenox Wealth Management
FGF	SunAmerica Focused Alpha Growth Inc	Bulldog Investors
FGI	SunAmerica Focused Alpha Large-Cap Fund, Inc.	Bulldog Investors
FMMH.OB	Fremont Michigan InsuraCorp	Steak & Shake
GSIGQ.PK	GSI Group	Stephen Bershad
GSIGQ.PK	GSI Group	JEC II Associates
GST	Gastar Exploration Ltd	Palo Alto Investors
HBRF.OB	Highbury Financial Inc.	Peerless Systems Corp
HFFC	HF Financial Corp	Financial Edge Fund
IMMR	Immersion Corp	Ramius Capital
JTX	Jackson Hewitt Tax Service	JTH Tax Inc.
KYN	Kayne Anderson MLP Investment Co	Karpus Management
LM	Legg Mason Inc.	Trian Fund
MZF	MBIA Capital Claymore Man Dur Inv Grd Muni	Western Investment
OSTE	Osteotech Inc.	Heartland Advisors
PMO	The Putnam Funds	Karpus Management
PTEC	Phoenix Technologies Ltd	Ramius Capital
RIC	Richmont Mines	Gregory Chamandy
RRGB	Red Robin Gourmet Burgers	Clinton Group
RRGB	Red Robin Gourmet Burgers	Spotlight Advisors
SLTC	Selectica Inc	Lloyd Miller
SMTS	Somanetics Corp	Discovery Capital
SSE	Southern Connecticut Bancorp Inc	Lawrence Seidman
TFC	Taiwan Greater China Fund	City of London Investment Group
TRA	Terra Industries Inc	CF Industries Holdings
TTWO	Take-Two Interactive Software	Carl Icahn
TUNE	Microtune Inc	Ramius Capital
UAHC	United American Healthcare Corp	Lloyd Miller
UAHC	United American Healthcare Corp	John Fife
USAT	USA Technologies	Brad Tirpak; Craig Thomas
UTSI	UTStarcom Inc	Shah Capital Management
VRX	Valeant Pharmaceuticals	Value Act Capital
WXCO	WHX Corp	Steel Partners
YORW	York Water Co	GAMCO

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