Delaware ruling May Create SPAC Havoc

A Dec. 27 opinion by a Delaware Chancery Court judge may cause trouble for some companies that went public by merging a SPAC with a dual-class share structure.

Over the last couple of weeks, a number of such companies filed requests in court, essentially asking for a defect in their corporate structure to be blessed so that it doesn't cause further issues, Axios reports.

In an opinion for a lawsuit against online retailer — regarding legal fees — Vice Chancellor Morgan Zurn concluded that Class A and Class B are two separate common stock classes, not series. Therefore, holders of the two categories of stock should get to vote separately. This, in turn, can invalidate previous and future votes if not done separately.

“It's long been observed that a lot of went public in a rushed and sloppy manner,” Tulane University law professor Ann Lipton tells Axios. “And this is yet another mistake they made, resulting in a technical violation of Delaware law.”

It's unclear right now how many SPACs were formed with the same structure, but it's likely there are more than the few already filing ratification requests in court.

Seven Oaks Acquisition shareholders voted in favor of taking Boxed public in December 2021. Since then, shares have gone from $12.51 to a 52-week low of 18 cents.

Now strapped for financing, the online bulk-products retailer last month said it's exploring a range of strategic options, including a possible sale of the company.

New York-based Boxed noted that the company also is “actively exploring capital-raising initiatives” and expects to unveil additional funding within the next 45 days. Investment banks and Solomon Partners have been retained as financial advisers to help Boxed assess its strategic alternatives. Read more.

Source: Delaware ruling May Create SPAC Havoc