Investors in TPG Pace Beneficial Finance (NYSE:TPGY) are getting schooled on SPACs this morning after the company revealed that it may not close its merger with EVBox, a Dutch EV charging station provider. TPGY stock was down more than 15% in pre-market trading.
“… significant uncertainty exists regarding whether the Business Combination will ultimately be completed on the terms currently contemplated or at all,” TPGY wrote in an 8-K form filed with the U.S. Securities and Exchange Commission late Monday.
What happened? According to the filing, it’s looking like the audited financial statements for EVBox, a carve-out transaction from parent Engie, will take longer than previously anticipated. That will prevent approval of the merger by June 8, 2021, the previously determined “outside date” for the deal to get the greenlight. TPG Pace could push the deal out to September, if it so chooses.
Could either side scrap the deal? Sure, that’s always possible, but it wouldn’t make much sense.
As TPGY had recently leveled off in the $14 a share area, it was clear that investors liked the deal. If Engie backs out, they are stuck until finding another buyer/merger partner for the charging unit. And TPG? Yes, there are other targets out there, but this one seemed to be the right one.
TPGY Stock Risks Already in Focus
The risks inherent in TPGY stock were highlighted earlier today both on social media and by InvestorPlace contributor Josh Enomoto.
On Twitter, SPAC pundit @spacanpanman led off a long thread about the 8-K filing with the tweet: “DEAL RISK is why pre-close SPACs trade at a discount to peer valuations. This is why some long only funds wait until a deal is effective to buy. A deal is never done until it’s done.”
They added that, “Carveout transactions are notoriously complex. When you’re taking a division public, trying to separate CLEAN financials from the parent can be very difficult. Add on top that EVBox is European: translating IFRS to GAAP accounting adds more complexity!”
For Josh Enomoto, though, writing prior to the filing, the risk in TPGY stock was more fundamental in nature. “TPGY is also at a disadvantage because it’s an infrastructure play. But with such a small market, this business faces severe risks, hence the downside,” he wrote in a piece published earlier today.
Considering the small percentage of global auto sales that come from plug-in EVs, he wrote, “investors are recognizing the reality of the electric (vehicle) future and are downgrading TPGY stock accordingly.”
With the TPGY stock battering today, the shares are all that much closer to levels last seen shortly after their November 2020 initial public offering. At that point, investors in the units received one Class A ordinary share and one-fifth of one redeemable warrant. Each whole warrant is exercisable for one Class A ordinary share at an exercise price of $11.50 per share.
On the date of publication, Robert Lakin did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
InvestorPlace contributor Robert Lakin is a veteran financial writer and editor, including previous stints with Bloomberg News and as a buyside equity research editor.