No Contribution to Trust for Non-Redeeming Shareholders

Leo Holdings Corp. (LHC), in a not unexpected move, filed a new preliminary proxy tonight to extend their completion deadline five and a half months from February 15, 2020 to July 31, 2020. However, what was unexpected is that LHC will not be offering any contribution to trust for non-redeeming shareholders at the extension vote.

By way of background, Leo Holdings, which raised $200 million at IPO on February 12th, 2018, had previously announced their intent to combine with CEC Entertainment (Chuck E. Cheese).  However, the deal fell through this past July and the agreement was terminated. Nonetheless, today’s proxy states that LHC is “currently in discussions with respect to several business combination opportunities…“, but clearly they’re going to need more time.

However, by not offering any contribution to trust for non-redeeming shareholders, LHC can expect a heavy number of redemptions at the extension vote.  Especially since they are asking for five and a half more months.  That’s a long time for investors to wait (on top of the 24 months they’ve already waited) without knowing if LHC will be able to announce a deal or not. Usually you need to pay up to get investors to stay in these situations.  However, in this type of a scenario, the redemptions are typically intentional.  Meaning, the SPAC has too much money for any new targets they are talking to for a deal to make sense. Hence, the need to reduce the trust value via redemptions.

Or, LHC wants to replace the cash in trust with PIPE investors. In fact, they put that in the proxy too…”The withdrawal of funds from the Trust Account in connection with the Election will reduce the amount held in the Trust Account following the Election, and the amount remaining in the Trust Account may be only a small fraction of the approximately $[?] that was in the Trust Account as of January [?], 2020. In such event, we may need to obtain additional funds to complete an initial business combination, and there can be no assurance that such funds will be available on terms acceptable or at all.” (the blanks are what’s in the proxy.  It will be added in later filings).

Regardless, without an additional contribution to trust and without an announced deal for investors to chew on, LHC is looking at some amount of redemptions.  The question is, how much?