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GLG Partners, the hedge fund group, got its New York stock market listing whenFreedom Acquisition Holdings, a blank-check company, bought a stake in mid-2007. Then, Freedom’s stock traded above $10. Now, the Man Group, listed in Britain, is buying GLG for $4.50 a share. Sure, Freedom’s owners are getting a price they haven’t seen since last August. But longer term, it looks like a bounced check for investors, Breakingviews argues.
Special purpose acquisition companies, or SPACs, were all the rage in the liquidity-flush world that ended in 2008. The idea, akin to the one that spawned Britain’s doomed South Sea Company in the 18th century, was to float a shell company and raise capital from investors to make some sort of acquisition in the future.
That is how GLG came to market, bypassing the extra complexities of an initial public offering of its own in a deal with Freedom that valued the hedge fund firm at around $3.4 billion. Now, even in a logical-seeming deal that accords GLG a roughly 50 percent premium to the closing price of its stock on Friday, the Man Group is set to buy GLG for around $1.6 billion. For any shareholders still around from the beginning of Freedom-turned-GLG, that’s a disappointment, Breakingviews says.
And Freedom’s investment in GLG looked like one of the better ones, the publication notes. The investors in special purpose acquisition companies — typically hedge funds looking for a short term gain — got just that, with GLG’s stock topping out above $14 later in 2007.
In many other cases, SPACs that “succeeded” in finding things to buy fairly rapidly lost value, Breakingviews notes. Those that “failed” and returned money to investors turned out to be better investments.
Of course, that pattern — with the slide in GLG’s share price from its 2007 peak — has a lot to do with conditions in financial markets, Breakingviews concedes. But then again, it says, special purpose acquisition companies existed largely because money was burning holes in investors’ pockets at the height of the boom, so it’s not surprising that many of their deals were badly timed.
The end of GLG’s term as a listed company almost qualifies as an epitaph for blank-check companies more broadly, according to Breakingviews. They are still out there, but the appearance of new ones has slowed to a trickle. Investors might keep in mind that if and when the phenomenon re-emerges, it may mean the next bubble is about to burst, the publication cautions. Source