Key Takeaways
- • Third Point LLC, the activist hedge fund led by Daniel Loeb, is in talks with investment banks to launch a special purpose acquisition company (SPAC), according to people familiar with the matter cited by Reuters.
- • The SPAC could raise hundreds of millions of dollars in an IPO later in 2018, per the sources, and would be the first of its kind raised by an activist hedge fund.
- • The vehicle is an attempt to diversify Third Point's revenue stream as its flagship fund, which has returned 15.6% on average over its lifespan, has flattened in 2018 amid stock market jitters.
- • Third Point manages close to $18 billion in assets; Third Point declined to comment on the plans.
Summary
Daniel Loeb's activist hedge fund Third Point LLC is in talks with investment banks about launching a "blank check" company that would raise money in an initial public offering to pursue an acquisition, according to Reuters, citing people familiar with the matter. The vehicle, known on Wall Street as a special purpose acquisition company (SPAC), would be the first of its kind raised by an activist hedge fund, a category that typically acquires stakes in public companies to press for changes or board representation. The sources said the IPO could take place later this year and raise hundreds of millions of dollars. Third Point declined to comment, and it is unclear what kind of companies the SPAC would target.
A SPAC uses IPO proceeds, together with borrowed funds, to acquire companies that are usually privately held. IPO investors typically do not know in advance which company a SPAC will buy, although many define the sectors they intend to pursue. According to the report, the move is partly driven by Third Point's desire to diversify its revenue. The firm's flagship hedge fund has returned 15.6% on average over its lifespan, but those returns have flattened this year amid jitters in the stock market. Founded by Loeb in 1995, Third Point has close to $18 billion in assets under management. Its past investments have included Netflix, Nestle, Sony and Yahoo.
Third Point has previous SPAC experience as an investor: it backed Nomad Foods, a SPAC launched in 2014 by consumer industry veterans Martin Franklin and Noam Gottesman. William Ackman's Pershing Square Capital Management also invested in Nomad Foods. Reuters notes that SPACs have traditionally deterred long-term institutional investors because shareholders can redeem their stock at the IPO price if they oppose a proposed acquisition, though this has made them attractive to hedge funds willing to bet on a deal. Some newer SPACs address this by launching with cornerstone investors who commit not to redeem their shares, providing greater financing certainty for acquisitions.
A SPAC uses IPO proceeds, together with borrowed funds, to acquire companies that are usually privately held. IPO investors typically do not know in advance which company a SPAC will buy, although many define the sectors they intend to pursue. According to the report, the move is partly driven by Third Point's desire to diversify its revenue. The firm's flagship hedge fund has returned 15.6% on average over its lifespan, but those returns have flattened this year amid jitters in the stock market. Founded by Loeb in 1995, Third Point has close to $18 billion in assets under management. Its past investments have included Netflix, Nestle, Sony and Yahoo.
Third Point has previous SPAC experience as an investor: it backed Nomad Foods, a SPAC launched in 2014 by consumer industry veterans Martin Franklin and Noam Gottesman. William Ackman's Pershing Square Capital Management also invested in Nomad Foods. Reuters notes that SPACs have traditionally deterred long-term institutional investors because shareholders can redeem their stock at the IPO price if they oppose a proposed acquisition, though this has made them attractive to hedge funds willing to bet on a deal. Some newer SPACs address this by launching with cornerstone investors who commit not to redeem their shares, providing greater financing certainty for acquisitions.
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