Legacy Acquisition Muddies the Warrant Waters
Very often, when a SPAC announces a deal, the warrant moves substantially higher.
It’s one of several ways we earn our keep at The Warrant Observer.
Pivotal Investment Corporation II (PICWS), that I told you about a few days ago, is a perfect example.
We bought the warrant, as part of our official SPACfolio, in July at $0.74.
When the company announced they would be buying XFleet last week, I personally sold those warrants at close to $4, then bought them back lower, and sold them again close to and well over $4.
But, that kind of gain doesn’t happen every time. And there is one sure fire way a company can kill the initial warrant pop, by…
Changing the warrant terms
Legacy Acquisition Corporation (LGCWS) did just that this morning when they announced the potential acquisition of Onyx. Onyx is a digital ecommerce site for the automotive parts aftermarket.
That market has been doing very well recently, given that no one wants to take public transportation, if they can help it. And, vacations are now done in cars, not trains or planes.
So, when I read the news this morning, I thought, hot dang, PICWS last week, massive win, and now LGCWS…what a way to start the week. (September has been my best month in a very good year for warrant trading, so it wasn’t surprising there was yet another winner on the table.)
Imagine my surprise when I saw the warrant was trading at between $0.85 and $0.95 after closing at $0.40 on Friday. I thought it should easily have been in the $1.50 to $3.00 range, and I was all set to let my warrants loose on the pop buyers.
I immediately went to the press filing describing the proposed deal with Onyx, and there was the smoking gun.
Legacy was changing the warrant terms.
Now, it’s very rare that a company changes terms so that they harm the warrant holders. And, arguably, the new terms may in the long run not be a bad deal for the Legacy warrant holders.
But, the company committed the cardinal sin against warrant holders…they changed the terms to an if/then geometry problem (is that geometry or algebra?). You don’t have to be super smart to trade warrants, by the way, LOL.
Their terms are based on money left in the trust fund at the closing of the deal. They give the warrant holders some amount of cash, and some number of common shares, depending on how much that money is. If there is one thing I hate when it comes to warrant terms…it’s ambiguous warrant terms.
Now, don’t get me wrong. I’m not super unhappy to have sold for a 125% gain…but Oh Legacy, it could have been so much more.
Oh well, as we say in warrant land…next. I sold all of my Legacy warrants at $0.90. Then shot off an email to my subscribers that changing the terms meant a lower warrant from the $0.90 level, at least this morning…as opposed to what could have been a move even higher.
Have a great week!