Investors are again talking about Social Capital Hedosophia Holdings Corp VI (NYSE:IPOF) stock. Unfortunately, not for the most positive of reasons. This is one of many special purpose acquisition companies (SPACs) backed by tech financier Chamath Palihapitiya.
Unlike some of his other SPACs, which have taken companies like Clover (NASDAQ:CLOV), Opendoor Technologies (NASDAQ:OPEN) and SoFi Technologies (NASDAQ:SOFI) public, this IPOF has yet to lock down a deal partner, and the clock is ticking, as InvestorPlace’s Joel Baglole put it.
This SPAC has until Oct. 14 to find a merger partner or it will have to liquidate. Sure, a liquidation isn’t a game-over moment for shareholders. The stock trades just over its liquidation value. It’s also not certain it will pursue a dissolution next month.
| IPOF | Social Capital Hedosophia Holdings Corp VI | $10.02 |
IPOF Stock and Its Looming Deadline
Going public in late 2020, Social Capital Hedosophia Holdings VI debuted just before the peak of the SPAC bubble. With its backer touted as the “King of SPACs,” investors were willing to price its shares at a premium, even before a deal announcement.
However, this strong performance didn’t last long. Shortly after surging to prices nearing $16 per share, IPOF stock plunged during the Spring 2021 SPAC wipeout. Since then, it’s essentially traded at or near its initial offering price ($10 per share).
While its shares struggled due to the waning popularity of these types of entities, it made little progress in locking down a merger target. A proposed deal to merge with luxury gym operator Equinox Group in May 2021 fell apart due to disagreements with the transaction price. Other possible merger deals discussed heavily online, like a merger with Discord or SpaceX, failed to move beyond the rumor stage.
Now, its merger deadline is looming. Per the current active terms, it has less than a month to consummate a transaction. Given the limited downside, some may see this as a “heads I win, tails I don’t lose too much” situation, but does that make it a buy?
Liquidation Isn’t a Given
On the surface, IPOF stock may seem like an asymmetrical wager. That is, a limited potential for loss, outweighed by potential upside. If a liquidation were to occur, potential losses would be minimal. Proceeds would be about $10 per share, and the stock today trades for around $10.02 per share.
Not only that, this SPAC isn’t bound to stick to its Oct. 14 deal deadline. Other high-profile SPACs that failed to do a deal in time, like Bill Ackman’s Pershing Square Tontine, went the liquidation route, but Chamath Palihapitiya could decide not to redeem IPOF’s outstanding shares.
However, a possible decision by this SPAC’s sponsor to not dissolve may not mean big returns ahead of those deciding to buy it today. Given current market conditions, it may still prove difficult for the company to lock down a merger target.
Many privately-held companies are likely sitting things out for now. It may not be until the bull market returns that they decide to go public. Even if it does find a deal, this may not result in a big run-up for shares. Unlike in 2021, investors are no longer bidding up SPACs following a deal announcement.
The Verdict on IPOF Stock
Investor euphoria for SPAC stocks long since passed. I wouldn’t count on Social Capital Hedosophia Holdings VI zooming back to its all-time high on news of a deadline extension and news of a deal.
In fact, quite the opposite. Investors today are valuation-conscious, due to rising interest rates. Unless it secures a merger with favorable valuation terms, I can see shares tumbling after a deSPACing. Similar to what played out with CLOV, OPEN, SOFI, and more recently, Akili (NASDAQ:AKLI), which went public last month through a merger with a Palihapitiya-backed SPAC.
Put simply, IPOF stock doesn’t appear to be a compelling investment opportunity. If it liquidates, there’s limited downside but zero upside. If it extends its deadline, downside risk will far outweigh the slim chances it rallies on a deal announcement. Hardly anything to get excited about.
IPOF stock earns a C rating in my Portfolio Grader.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
