Blank Checks Firing Blanks
By LAUREN SILVA LAUGHLIN and GEORGE HAY
New York Times
Published: July 20, 2009
The alphabet soup of investments that Wall Street cooked up during the boom — M.B.S.’s., C.D.O.’s, SIVs and the like — included yet another obscure financial ingredient: things called SPACs.
That is short for special-purpose acquisition corporations, or blank check companies. These shell companies went public and promised to use investors’ money to make acquisitions.
But it turns out, many of these blank checks were never cashed. And SPACs that returned investors’ money after failing to find acquisitions generally performed better than those that actually made deals.
Dozens of big-name deal makers pursued SPACs, including Thomas O. Hicks, the private equity maven; the billionaire Ronald O. Perelman; and Greenhill, a boutique investment bank.
GLG Partners, the big hedge fund, effectively went public by selling itself to a blank check company. Other SPAC deals are still in the offing. But most SPACs have not consummated deals, either because of the turmoil in the markets or because shareholders blocked their proposed acquisitions.
Those that fail to find acquisitions over a certain period of time are required to give investors their money back. About 40 of 66 SPACs that started in 2007 have been liquidated or will probably end up being liquidated, according to SPAC Research Partners.
And SPACs that sat on cash and safe investments have actually outperformed those that did deals. Take the GSC Acquisition Company, established by GSC Group, a debt-focused investment firm. The SPAC’s bosses tried to acquire Complete Energy, a power producer. But the deal wasn’t completed in time, and GSC Acquisition was liquidated last month.
Investors received around $9.80 a share in cash, just shy of the $10 they paid in its initial public offering two years earlier.
Investors in SPACs that did deals haven’t been so lucky. Shares of Aldabra 2 Acquisition Corporation, for instance, have plunged more than 75 percent since that SPAC bought Boise Cascade’s paper, packaging and transportation business and changed its name to Boise Inc. in February 2008.
In the grand scheme of financial innovations, SPACs don’t appear to have done too poorly. But they are another creature of the recent bubble whose demise investors shouldn’t regret.
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