A paper gain of almost $3.3 billion on an investment of $43 million personal investment in the blank-check acquisition firm they are merging with luxury electric vehicle startup Lucid Motors Inc have been made by veteran dealmaker Michael Klein and his partners, said a report from Reuters.
A meteoric rise in the shares of Klein’s special purpose acquisition company, SPAC Churchill Capital IV Corp led to this gain within just a few weeks. According to analysts, this is one of the most striking examples of benefits derived by a Wall Street insider from the amateur trading frenzy in shares such as GameStop Corp which has made the world of SPACs very popular for going public.
Hopes of a quick gain prompted many mom-and-pop investors to purchase shares of Churchill Capital IV which helped in driving the implied valuation of Lucid from $11.75 billion at its nominal deal price to $56.3 billion at Tuesday’s closing price.
Based on calculations of the shares that Klein and his partners are entitled to in the SPAC, their gain on paper at least is expected to be many folds of their investment – which is more than 7,500 per cent of what they had invested in the company.
They are however not allowed to cashing out for up to 18 months and there can be a considerable drop in the stock prices within that time – especially if the electric car company and Tesla rival Lucid is unable to meet its ambitious production targets. The company is yet to sell a single electric car.
As a form of compensation which is known on Wall Street as the “promote”, large stakes in companies they help take public are often awarded to sponsors of SPAC. But an unprecedented payout has been made available to Klein because of his and his partners’ shares in the SPAC.
According to regulatory filings, 42.85 million warrants in the SPAC was received by Klein and his partners and these are exercisable at $1 a piece. 51.75 million so-called founders’ shares in the SPAC have also been given to them.
The value of the share of the founders of Churchill Capital IV was at $1.8 billion, considering the firm’s closing stock value at $35. About $1.5 billion would be the value of the shares available for purchase through the warrants.
Klein had previously worked for 23 years at Citigroup Inc and was in charge of the institutional clients business of the bank wherein his role was related to advisory and financing practice.
At one time, Klein was also considered to become the head of Citigroup after the exit of Chief Executive Sandy Weill. Klein however left the bank in 2008. Later on he founded a New York-based boutique advisory firm, M. Klein & Co, and branched out into SPAC investing in 2018. \
(Adapted from Reuters.com)