As we previously posted, the Securities and Exchange Commission held an open meeting this morning to consider and vote on whether to adopt final rules regarding SPAC IPOs and business combinations (de-SPAC transactions). During the open meeting, Chair Gensler citing Aristotle, noted yet again a desire to treat “like as like” and, in that vein, to consider SPACs and the related de-SPAC transactions as alternative IPOs that should be subject to investor protections that are available to investors in traditional IPOs—including as it relates to disclosures and gatekeeper protections. This ignores that the business combination is subject to a state law process applicable to business combinations and that boards of directors have duties. And, of course, one wonders, is it truly “like as like” when companies that begin life as SPACs even once subject to the new, enhanced disclosure requirements will not be treated (once they cease being “shell companies” or former shell companies) like other filers? What would Aristotle have thought about this? A rhetorical question certainly since the great philosopher probably would not have known what to make of our securities laws.
In any event, the final rules take into account only some of the concerns raised during the public comment period. The final rules result in quite substantial changes, including, among these, the following:
- Enhanced disclosures in connection with SPAC IPOs, which include:
- Additional disclosures on SPAC sponsors, dilution, SPAC sponsor compensation, considerations evaluated by the SPAC board in evaluating the business combination, disclosures of any outside opinion received by any outside third-party regarding the de-SPAC transaction (i.e., a fairness opinion), etc.
- Additional disclosures about the target company
- Dissemination of information regarding the business combination at least 20 days prior to action being required to be taken regarding the business combination
- A revised definition of SRC status following completion of a de-SPAC transaction
- Co-registrant status for target companies
- Amendments to Regulation S-X in order to align these as between IPOs and business combinations
- Enhanced protections in business combinations, including disclosure of all material bases of projections, and a new definition of “blank check company” under the PSLRA so that the safe harbor is unavailable to SPACs
The Commission determined not to adopt Rule 140a (the most controversial aspect of the proposed rule, which related to statutory underwriter status). The Commission also determined not to adopt the Investment Company Act safe harbor. Instead, the final rules include guidance on Investment Company Act status and provide guidance on underwriter status. Will the Commission’s “guidance” provide clarity? Maybe another philosophical question.
A detailed client alert analyzing all of this in detail will follow.
See the fact sheet here.