Shares of Social Capital Hedosophia VI (NYSE:IPOF) stock and Social Capital Hedosophia IV (NYSE:IPOD) stock are back to their $10 initial public offering (IPO) price after Chamath Palihapitiya announced that the two special purpose acquisition companies (SPACs) had failed to find a target. As a result, the two investment vehicles will return a combined $1.61 billion back to its shareholders.
Palihapitiya explained that the valuation of several potential target companies had made it unreasonable to merge with them without having a sufficient margin of safety. Furthermore, the current state of the market caused potential suitors to be wary of listing publicly. The Social Capital CEO and his team had evaluated more than 100 companies over the past two years.
Meanwhile, some of Palihapitiya’s successful SPAC mergers, like Opendoor (NASDAQ:OPEN), SoFi (NASDAQ:SOFI) and Clover Health (NASDAQ:CLOV), have faced extreme difficulty in the public markets. All three companies are below their IPO price of $10 and down at least 40% year-to-date (YTD). The heavy declines in these companies have may scared off potential merger targets.
IPOF Stock and IPOD Stock to Return Capital Back to Shareholders
Palihapitiya’s view on SPACs remains consistent as to when he signed his first SPAC deal. He ultimately views them as a tool to support the growth prospects of a company.
Still, 2022 has been anything but pleasant for SPACs. There are more than 600 SPACs that will face deadlines for a merger target in the next 17 months. These blank-check companies hold more than $174 billion of cash that may be returned to shareholders if a target is not found. Earlier this year, acclaimed hedge fund manager Bill Ackman shuttered his $4 billion SPAC after failing to find a target in time. Pershing Square Tontine Holdings was the largest SPAC of all time.
Furthermore, the U.S. Securities and Exchange Commission (SEC) may be cracking down on SPACs. Earlier this year, the agency drafted proposals that would limit unreasonable claims, such as excessive revenue growth. Several blank-check companies had issued excessive growth targets before going public, only to later reduce them dramatically.
Palihapitiya explained that his focus will now go toward finding merger targets for the two remaining Bio 2.0 SPACs. There are four in total, with two already finding targets in the form of ProKidney (NASDAQ:PROK) and Akili (NASDAQ:AKLI). AKLI is trading way below the IPO price of $10, while PROK is hovering near it.
On the date of publication, Eddie Pan did not hold (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.
