Blank checks are hot tickets

Liz Moyer 12.20.05, 7:39 AM ET

New York -Blank check companies are proliferating, though just eight of the several dozen that have been formed have remotely succeeded in their original missions.

These companies -- shells, really, that promise they will take investors' money and use it to buy real companies -- are effectively Wall Street's Wild West.

There are 39 of these companies in registration to sell shares to the public, including 32 that have filed with the Securities and Exchange Commission just since July 1. Several are seeking listings on the American Stock Exchange, where four already trade. The total capital expected to be raised in these stock offerings is nearly $3 billion.

They are also popping up in Europe, where two have begun trading on the alternative marketplace of the London Stock Exchange (which, incidentally, is itself publicly traded).

But investors, mainly value fund investors, hedge funds and high-net-worth individuals, aren't getting much for their money. These blank check companies, also known as special purpose acquisition corporations, have no operations or businesses. Instead, they are set up with the support of private equity investors with the goal of acquiring a business within a specific time frame.

In most cases, the name of the CEO is all a SPAC has going for it. On Friday, Star Maritime Acquisition Corp. raised $188 million in its listing on the American Stock Exchange. It is run by a group of executives who have a high profile in the shipping business, though they aren't necessarily household names. Its chief executive is Prokopios Tsirigakis.

Also on Friday, shares of Boulder Specialty Brands joined the crowd of SPACs that trade on the over-the-counter bulletin board market, or pink sheets, where most of them are to be found. The Longmont, Colo., company run by chief executive Stephen Hughes, a food industry executive, raised $136 million.

Among those in registration and preparing for a listing on the American Stock Exchange: Endeavor Acquisition Corp., run by Eric Watson, a New Zealand investor, and Jonathan Ledecky, a private equity manager and the founder and former chief executive of US Office Products. Endeavor's board of directors includes Edward Mathias, the founder of buyout shop Carlyle Group. It is looking to raise $200 million.

Then there is Acquicor Technologies, founded by former Apple Computer executive Steve Wozniak and others and looking to raise $150 million to buy in the technology, multimedia and networking sectors.

Around since the 1990s, SPACs have exploded in popularity in the last couple of years as hedge funds and other institutions and individuals scour for the next great thing that has gone unnoticed by Wall Street. They are raising far more than the $20 million to $50 million that used to be typical, and they are attracting the interest of deal makers at large investment banks, like Citigroup and Deutsche Bank--a niche where boutiques once dominated.

Citigroup underwrote the Boulder Specialty deal, along with Roth Capital. Deutsche Bank is the underwriter behind a pending $150 million IPO being arranged for Grubb & Ellis Realty Advisors, which aims to buy commercial real estate properties.

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Apple co-founder "Woz" launches SPAC

Former Apple execs, including Woz, launch "blank-check" company, Acquicor

Wozniak (credit)

Here's our story in the Mercury News today about the trio of former Apple Computer executives who are riding on the reputation of the famous company's brand, and have created a new shell public company, Acquicor, that will shop to acquire technology properties.

Acquicor is quite an extraordinary story, for a few reasons. It is led by former Apple Chief Executive Gilbert Amelio, who was ousted from Apple in 1997; co-founder Steve Wozniak, who is now an entrepreneur running a Mountain View wireless start-up called Wheels of Zeus (WOZ); and Ellen Hancock, who was chief technology officer, also until 1997.

First reason it is remarkable: Acquicor raised $150M yesterday in its IPO, even though these three folks are the company's only employees. The company is a so-called blank-check company, meaning it will basically write checks for technology assets. Its credibility rests entirely on the reputation, experience and network of the three executives.

Second reason it is remarkable: These guys are already leading extremely busy lives. Read our story, although we didn't have enough space in our Merc story to list all of their jobs and board seats. Read the SEC prospectus for full details. Amelio, the CEO, has a full time job as CEO of another company (perhaps he is trying to keep up with Steve Jobs, who is now CEO of Apple and, until Disney's acquisition, CEO of Pixar?)

Third reason it is remarkable: The execs are indeed big names, and each one of them are undoubtedly highly respected, but how much have they really proven recently? It is noteworthy how former success here in Silicon Valley can live on in perception. There is a saying among reporters in the news business: "You're only as good as your last story." In former days, some veteran reporters just got so "tired" in their later years that people began to wonder how good these icons really were -- even if they'd written brilliant stories during their dashing youth. Of course, technology is a different business. And we are not saying here that these three are tired. It is just that usually a public company has to jump through quite a few hoops on the way to prove itself, and its management. Sales, for one, would be nice. In this case, no sales. And Apple's phenomenal success with the iPod, a product ushered in under Steve Jobs, is a relatively new phenom. People forget Apple was struggling back in the late 1990s. To be fair, Amelio's ouster from Apple may have perhaps been more to do with a cultural misfit. But for these three to be making strategic technology decisions in a world that is vastly different than when they cut their teeth two decades ago, and with so little proof that they can work now as a team, makes us muse.

Posted by Matt Marshall on March 15, 2006 8:19 AM

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See related article, "Watch the SPAC trend."

The IPO gets edgy

What's trendy on Wall Street? Shell "companies" that go public with no business plan other than to buy an existing brand with shareholders' money, says Fortune's Jennifer Reingold.

By Jennifer Reingold
Fortune senior writer

February 7 2007: 6:48 AM EST

(Fortune Magazine) -- Dov Charney, CEO and founder of American Apparel, has never been much of a traditionalist. He produces his casual clothes in the U.S. when virtually all his competitors offshore them. His ad campaigns look more like nudie mags than the Neiman Marcus catalog. So it should come as no surprise that Charney has managed to take his company public using an edgy technique that, like some of his ideas, is fast becoming trendy.

On Dec. 18, 2006, Charney said he was selling American Apparel to an already-public company called Endeavor Acquisition (Charts) for $384.5 million in restricted stock, cash and debt. Endeavor is a SPAC, or special purpose acquisition company - an entity that has gone public for the sole purpose of buying another company in the future.

According to Dealogic, 87 SPACs have begun trading in the U.S. since the end of 2003, buying some well-known companies like smoothie purveyor Jamba Juice. Last year alone, 40 SPACs worth $3.4 billion were announced, up from $484 million two years earlier.

SPACs are essentially shell companies. They go public with little more to show investors than a management team and an agreement that the money raised will be used to fund an acquisition in a particular sector, such as retail, or in an emerging market like China. Ergo, a SPAC is a roll of the dice.

"Imagine paying $50 to go to a Broadway show, and you have no idea what's behind the curtain," says lawyer Mitchell Littman of Littman Krooks LLP, who works with a lot of SPACs. "You are relying on the fortune and integrity of the management team." Once a deal is completed, the SPAC's managers (who typically receive 20 percent of the public shares as compensation) are free to sell their holdings, usually after a lockup period.

Today's SPAC boom harkens back to the flurry of "blank check" companies that sprang up in the 1980s. Those were widely discredited by a wave of scams in which fraudsters would take a shell company public, announce a merger, pump the stock and then dump it before everyone realized that the hot target company was anything but. Investors have a lot more protection with SPACs, which must hold almost all the money in escrow until a deal is done.

From Charney's perspective, there is no downside to the arrangement. It lets him raise cash relatively quickly, remain the largest shareholder and avoid having to sell other investors on his vision until after his company is already publicly traded.

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Media SPACs on the rise

For media acquisitions, the rise of the 'blank check'

By Richard Siklos

Thursday, April 26, 2007

NEW YORK: It used to be that former U.S. media executives were offered consulting contracts, partnerships at private equity firms or book deals. Now, they are being offered a blank check.

Over the past several months, new shell companies led by former senior executives of companies like Time Warner, ABC, RCN, DirecTV and VNU have raised hundreds of millions of dollars on the stock market in low-profile deals using an obscure but growing financing technique called "special purpose acquisition corporations," or SPACs.

SPACs have been gathering steam over the past two years as an alternative to private equity as Wall Street firms like Deutsche Bank, Citigroup, Merrill Lynch and Lazard have begun underwriting them. The catch in these deals is that investors do not know what their money is going to be spent on when they buy shares - hence the "blank check" designation given by the Securities and Exchange Commission.

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