Warrant holders had until 5 p.m. Eastern Time to exercise their option to buy the equivalent stock for $11.50 a share.
According to the company, there are 6.9 million public warrants outstanding. The PIPE (private investment in public equity) investors are not subject to this redemption. Any warrants that aren’t exercised by the Redemption Date will be redeemed for 1 cent each.
Matterport’s early redemption is a win for shareholders. Here’s why.
MTTR Stock Dilution Adds Cash
The one-cent redemption price ensures that the company will add most, if not all, of the $79 million [6.9 million times $11.50] raised by the early redemption. That was in addition to its gross proceeds of $640 million received from its July special purpose acquisition company (SPAC) merger with Gores Holdings VI.
Several high-profile de-SPACs have done early redemptions in 2021. Lucid Group (NASDAQ:LCID) raised $173 million in cash from the exercise of some of its public warrants before announcing a cashless redemption. Each warrant was worth 0.4458 Lucid shares. This fractional share is worth $18.29 as I write this.
And the best part? The warrant holders didn’t have to fork over $11.50 in cash. So both the shareholders and the company wins. I’ll take that payday every day of the week.
On the downside, Arrival (NASDAQ:ARVL) did an early redemption in July that raised $141 million from the exercise of 12.23 million public warrants at $11.50 a share. As part of the exercise, it paid out $7,115 to redeem 711,536 unexercised warrants.
The shares of the maker of commercial electric vehicles have fallen 59% since the announcement of its early redemption on June 18. The price decline explains why 711,536 warrants went unexercised. ARVL closed trading on the July 21 redemption date at $14.14.
As we sit here today, Matterport stock is trading at a little more than $22.30, 94% above the $11.50 exercise price. If the share price remains above $20, I don’t see too many warrant holders failing to exercise their warrants over the next month.
Assuming all 6.9 million warrants are exercised, the share count will rise by 6.9 million or 2.8%, to approximately 249.4 million.
The dilution is negligible.
Where to From Here?
The problem with early redemptions is you never know where a share price will go after investors have exercised their shares. So for every positive experience such as Lucid, you have a negative one with Arrival and others.
As I highlighted in my story, Hyliion warrant holders would only lose money if the share price fell to $10.50, from $18.47 in early December 2020. The dilution for HYLN was 8%, considerably higher than Matterport’s. I probably should have been a little more concerned about the dilutive effect in hindsight.
Hyliion shares currently trade around $6, down 20% in the past month alone, but Hyliion’s fate is a story for another day.
From a company perspective, I think it makes total sense to redeem warrants early. First, it removes a significant overhang from the capital structure, whether on a cash or cashless basis. It allows the company to get past the financing of its capital structure to the operation of its business.
Google the words “Announces Redemption of Public Warrants,” and you’ll find hundreds of companies. Matterport is the top story using these search terms.
The Bottom Line on MTTR Stock
I recently wrote about Matterport for the first time. I was immediately taken by the usefulness of its spatial data platform for creating a digital twin of an existing real estate property.
“As I said at the beginning of this column, if you can get MTTR stock in the teens, you should run, not walk, to buy some,” I wrote on Dec. 13. “For those who are looking to hold onto the shares for three to five years, I think that you will make a significant amount of money by buying them at their current levels.”
Since I wrote about Matterport for the first time, I found out from my wife’s business partner at their construction company that one of their big clients uses the platform for showing off apartment renovations. That’s an endorsement that hits close to home.
As for the early redemption, I wouldn’t be too concerned about it. Matterport is a company that’s going places. In two years, you will have forgotten the subject.
Matterport is an excellent long-term buy.
On the date of publication, Will Ashworth 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.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.