The principals of Energy Infrastructure Acquisition Corp. include three former associates of Marc Rich. International Metal Enterprises, which filed a registration statement on February 23, 2005, featured Alan Kestenbaum, a former associate of Mr. Rich, as its CEO. International Metal withdrew its registration statement on July 11, 2005, citing “market conditions.” Over the last two years, only one other blank check company, JK Acquisition, has withdrawn its registration statement.
Street Readies Check for Marc Rich Cronies
By Matthew Goldstein
Senior Writer
2/17/2006 7:18 AM EST
It's not quite the return of rogue billionaire Marc Rich, but three of his former associates have found a new line of work on Wall Street.
The former Rich cronies are part of the executive team heading up a so-called blank-check IPO filed last week by Energy Infrastructure Acquisition Corp. The six-month-old company is looking to raise $150 million from investors to finance the acquisition of a yet-to-be-chosen oil refinery or tanker business.
Rich, who made a fortune from oil and commodities trading, fled to Switzerland in 1983 after being indicted on federal tax-evasion charges. On his last day in office, President Clinton granted a controversial pardon to Rich, whose ex-wife Denise is a big Democratic contributor.
There's no indication that Rich, who is still living in Switzerland, is part of the seven-member management team at Energy Infrastructure, which rents office space from a New York attorney.
But the company's CEO, Arie Silverberg, was a top crude-oil executive with Rich's former Swiss-based firm Marc Rich AG, now called Glencore International. Two other former Rich traders, Jonathan Kollek and David Wong, are directors of the company.
The president and COO is George Sagredos, who is listed in the IPO prospectus as the managing director of the Hermitage Group, another Swiss-based oil and commodities trading firm that does business in Russia. In 2002, Sagredos briefly served as a director for American Energy Group, an oil and gas company that recently emerged from bankruptcy.
The initial public offering from Energy Infrastructure is the latest in a wave of blank-check stock deals filed the past year by management teams in search of a business plan. Investors who buy into blank checks are in effect betting on the resumes of the managers and their ability to find a suitable business to acquire.
But blank-check companies haven't had much success investing the nearly $2 billion they've raised from investors, mostly from hedge funds and wealthy individuals. To date, only four of the 40 blank-check companies that have sold stock to the public since August 2003 have consummated a merger with an existing business.
Despite that record, investors haven't been shying away from blank checks, which are sometimes called "special purpose acquisition companies," or SPACs. Investment banks EarlyBirdCapital, Maxim Group and Broadband Capital Management are among those pitching these deals, which are sold as low-risk propositions because investors usually get back up to 90% of their money if a merger isn't completed within 18 months of the IPO.
The money raised in a blank-check IPO is deposited in an interest-bearing bank account. The only money that gets spent prior to a merger being approved are the fees for the bankers and other operating expenses.
In the Energy Infrastructure deal, the company is selling 17.25 million "units,'' which consist of one share of stock and a tradeable warrant to purchase an additional share. Each unit is priced at $10.
Maxim Group is poised to rake in $6 million in fees for underwriting the offering. Allan Schwartz, a New York lawyer who is renting space to the fledging company, is collecting $7,500 a month for his trouble.
Of course, in the world of blank checks, an office is merely a place to send bills and make calls. That's important, because all seven members of Energy Infrastructure's management team live outside the U.S. and couldn't be reached for comment.
Schwartz, meanwhile, didn't return several phone calls to discuss the Energy Infrastructure IPO. His receptionist said Schwartz can't comment because the company is in a "quiet period.''
This is the second blank-check company that Schwartz is renting space to at his Madison Avenue offices in midtown Manhattan. He's collecting another $7,500 a month in rent payments from Star Maritime Acquisition Corp. (SEAU:Amex) , which raised $188 million in a December IPO. The bankers on the Star Maritime blank-check deal were Maxim Group and EarlyBirdCapital.
Of course, the big winners in any blank-check deal are the management team, which typically acquires its stock for a nominal cost.
In the Energy Infrastructure deal, the seven officers and directors will collectively own 24% of the company's shares after the offering. Together, they paid $25,000 to acquire those 3.9 million shares.
The biggest single shareholder will be Sagredos, who will own 9% of Energy Infrastructure's shares after the offering. In October, Sagredos lent the company $300,000 to cover the initial costs of the IPO. The loan, which carries a 4% interest rate, will be repaid from the proceeds of the deal.
But Sagredos is looking at an even bigger payday down the road if Energy Infrastructure can find a suitable merger partner. If the stock trades above $12 following the completion of a merger, Energy Infrastructure will give Sagredos another 3 million shares.
It seems Sagredos, who claims to have worked as a trader on the commodities desk at Goldman Sachs (GS:NYSE) in the 1980s, would have quite an incentive to get a deal done.
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