Social Capital Hedosophia Holdings V Is a Mess, but Jump on SoFi Post-Merger

About one month ago I endorsed buying special purpose acquisition company (SPAC) Social Capital Hedosophia Holdings V (NYSE:IPOE) stock, based on its pending purchase of SoFi, the California-based online bank and brokerage.

A photo of wooden blocks that say SPAC on a folded newspaper.

Source: Dmitry Demidovich/ShutterStock.com

Since then, IPOE has traded for as little as $15.14 and for as much as $18.30 as speculators try to estimate its value.

The most recent move in IPOE has been down. It’s set to open this morning at about $15.40

Why is IPOE stock still so volatile, when we have known for months the basic parameters of the deal?

Uncertainty and IPOE Stock

If you buy IPOE today, you should be getting in near the post-merger valuation of $6.5 billion, after other investors are accounted for.

Under the deal, SoFi will collect about $2.4 billion from Private Investment in Public Equity (PIPE) investors who are getting in at $10/share. IPOE holds another $805 million of cash in trust. Existing shareholders would maintain control with a 74.2% stake.

The deal was due to be done in March, however. Then investors were told it would close April 9. IPOE is still trading.

One reason for the delay may be the acquisition of Golden Pacific, a small Sacramento bank SoFi said it was buying on March 9 for about $150 million.

The deal must be approved by the Office of the Comptroller of the Currency (OCC) and the Federal Reserve. It’s a big deal.

The move is the next step toward making SoFi a national bank, like JPMorgan Chase (NYSE:JPM). SoFi could take direct deposits and make loans based on those deposits, rather than acting as a re-seller.

If this approval is all that’s holding up the final merger, we’re good. On the other hand, there is growing uncertainty around SPAC sponsor Chamath Palihapitiya, some of whose deals are under water.

SoFi Doing Things Right

Even before the digital ink was dry, SoFi announced it would offer a credit card, backed by an aggressive issuer called the Bank of Missouri, based south of St. Louis. This month, SoFi announced a deal with a start-up, Moto ReFi, to do auto loans.

There’s also the SoFi brokerage, which competes with Robinhood. There’s also Galileo, a payments processor it bought for $1.2 billion last year.

All the deals are similar. SoFi is buying capabilities from small players it can roll into a full-service bank-and-brokerage offering for a national audience, running off a mobile app.

The comparison with JPMorgan Chase isn’t pure hyperbole.

The Bottom Line

Wall Street is angry because it’s becoming an app. Banking is an app, brokerage is an app. SoFi is the ultimate expression of this change and, in Anthony Noto, it has a leader who can drive that change home.

As I said in my original story, it’s the jockey who matters on a horse like this. Noto is a former Goldman Sachs (NYSE:GS) banker who helped take Twitter (NASDAQ:TWTR) public. He’s also a former chief financial officer for the National Football League, one reason the SoFi name is on the new Los Angeles Rams stadium.

If Noto continues to run SoFi, I think it’s in good hands. He’s a West Point graduate whose business degrees come from the University of Chicago and Wharton School of Business. He’s still just 52. He could become his generation’s Jamie Dimon, who also got to the top after a flurry of deal-making with Citicorp (NYSE:C) and Bank One.

Forget Chamath. Buy Noto. Wait until the deal is final, then buy Noto with both hands.

At the time of publication, Dana Blankenhorn directly owned no shares, directly or indirectly, in any stock mentioned in this article.

Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com, tweet him at @danablankenhorn, or subscribe to his Substack https://danafblankenhorn.substack.com/.


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