SPACs

ONE MORE REASON TO BECOME A VEGETARIAN

You knew salmon was great for raising your good (HDL) cholesterol – but did you know that farmed salmon (aka “salmon affordabilus”) contains carcinogens and pesticides? Did you know what trawling for shrimp is doing to the turtles? Click here to find the environmental and health status of your favorite fish . . .

. . . although even a quick perusal of the site reveals its limitations. (E.g., farmed oysters and catfish are highly rated; but drill down and you see that “Available data are insufficient to assess contaminant levels in this seafood” – a disclaimer widely applied across the site.)

Even so . . . apples, I tell you! Carrots! Beets!

THE WORLD’S SMALLEST ELECTRONIC CALCULATOR

Monty Goolsby: “I wouldn’t sell my $395-in-1972 HP-35 scientific calculator for all the tea in china. You can read a history of HP calculators here (a non-HP site).”

Bill Spencer: “I still have a basic 4-function calculator that I bought in the ’70s for $400 (which was a lot more then). What was I thinking?”

F That you could give it to the Smithsonian in 50 years and get a tax deduction?

SPACS [but only if you’re really interested]

We made ten times our money, or thereabouts, on the first set of Aldabra warrants, which became Great Lakes Dredge & Dock. (I continue to hold my GLDD shares for the long term. While there are no guarantees, there is something inexorable about silt.)

The jury is definitely out on the second set of Aldabra warrants, which became Boise Paper (BZ). At first they more than doubled. But then, having hit $3 not long ago, they are now just 56 cents, giving us the right to buy BZ shares at $7.50 anytime in the next three or so years. That was a lot more exciting when the stock was $10 last year than it is with the stock at $4.15.

The jury is similarly out on HAPN warrants which became InfuSystems (INHI). The stock is down from $6 to $2.90, having dropped as low as $2.20; the warrants are 27 cents, vaguely where they were when we first bought them, but nowhere near the $1.50 or so they’d be if the stock had stayed at $6.

One of the reasons these stocks are down is that the market has taken a hit and the economy is scary. And one reason may be that the companies are not doing as well as investors would like. But another reason is that hedge fund managers bought (or held onto) the warrants and shorted the stocks, driving their prices down.

A smart friend in the midst of the SPAC business reports that the bloom is off the SPAC niche:

More and more SPACs have liquidated because they couldn’t find a deal – or the deals they did find were voted down.

And when a deal does get done, the SPAC really hits the span. (Get it? Spic and Span? No? Wanna hear a parrot joke?) That’s because hedge funds and arbitrageurs are buying the warrants and shorting the shares.

Take BZ. It was above $9 when the deal was done. So you buy some warrants at $1.50, say (giving you the right to buy the stock at $7.50), and you short the stock at $9. If the stock goes to $4.15 – as in fact it has – you have a nearly $5 profit on the short side and (currently) only a $1 loss on the warrant. Now, perhaps, you will take your profit (so maybe you’ll help push the price back up some) . . . and then short it again if it gets back up around $7 or $8, figuring that you have a chance to gain nicely from the short, and with very little to lose, because you still have those warrants. If the stock went to $10 – or $100 – your loss on the short would be offset by your profit on the warrants.

Actually, it’s even worse than that (or better, if you’re a hedge fund) because you may not even need to buy any warrants – you already have them from when you first bought the Aldabra 2 units that represented one share of stock and one warrant.

Anyway, this puts a good bit of selling pressure on the stock, which is one reason it falls.

This dynamic no longer affects us with GLDD, because the warrants were all exercised. We’re out of the mud with that one, as it were, at least as regards the weight of a warrant arbitrage.

With BZ and INHI, that weight will be a continuing drag . . . but a lot can happen between now and 2011, so I’m holding my warrants (purchased with money I truly can afford to lose). (One thing that could happen: the company itself could take some cash and buy up a lot of the warrants at depressed prices, reducing the overhang.)

I put in to buy some BZ stock today. Yes, there’s the recession, which could be severe; and yes; there’s the rising cost of raw materials in the Northwest (turns out, when fewer logs are being sawed to make houses, fewer wood chips and scraps are available to sell to the paper mills, which drives up the cost); and yes, the world is going paperless, supposedly. But look out a few years, and – famous last words – I’d guess a triple from here is more likely than a total loss, so it’s the kind of coin I’m happy to flip, albeit only with money I can truly afford to lose (OWMICTATL).

Which leaves NAQ, the SPAC that raised $400 million last fall.

Will it be able to find a tempting acquisition and make a deal? The now-established pattern of these stocks falling once the deal is done – or the deal’s NOT getting done – may make sellers less eager to agree to sell to a SPAC. Which in turn would make it less attractive for the SPAC holders to approve what might be a mediocre deal.

If no deal is made – or the deal IS made but rejected by holders of more than 40% of the outstanding shares (and thus can’t be completed) – the warrants expire worthless.

If a deal is made and approved, it’s very possible there will be heavy shorting of the underlying stock, driving its price down. That won’t be great for the warrants in the short run, either.

The bottom line for NAQ is that those who chose to buy the units (a share of stock plus a warrant, $10) or the shares ($9.20 or so) have a conservative investment. Worst case (that I can think of), they opt out of any deal that is made and retrieve their cash, plus some interest (minus some modest expense) . . . while for those who bought the warrants at 90 cents – well, at the very least, I was a fool not to suggest that we wait for them to drop to 43 cents on April 29.

Later This Week: The McCains Have a Vast Fortune (But He’s Right: The Economy Is Really Not His Strong Suit)