Falcone Takes a Stab at SPACs – ValueWalk Premium

Falcone Takes a Stab at SPACs

Falcone Takes a Stab at SPACs

One of our favorite hedge fund managers, Philip Falcone, is in the news again with a new venture. This time he’s trying his hand with a special-purpose acquisition company (SPAC) and last week, we were all over the story.

We found it pretty interesting that Falcone is opening a new company while he’s under investigation by The Securities and Exchange Commission. He has denied any wrongdoing and has vowed to “vigorously” fight the charges against him which includes allegedly borrowing $113 from his Harbinger Capital Partners to pay his personal taxes–among other things.

His firm also allegedly took favor to some investors, including Goldman Sachs Group, Inc. (NYSE:GS), to cash out its investments as others had been restricted.

Falcone has also been charged with manipulating specific bonds and stock’s market prices.

On Friday in a New York Times article by Steven M. Davidoff, he wrote about Falcone’s new SPAC, the $65 million Australia Acquisition Corp (NASDAQ:AAC). After going public in November 2010 to buy Australian businesses, the company gave itself a self-imposed 21 months to either conduct a business transaction or cease operations. According to Davidoff, this time frame is par for the course with SPACs.

With opportunities not looking so great on the Australian front, AAC pursued a business transaction by taking a controlling interest in Asian Coast Development Ltd. (TSE:ACDL) (Canada), a Vietnamese casino development, and 9.7 percent stake from Brazil’s do Brasil SA (FER), from Harbinger Capital Partners.

Sound familiar? Yep, that’s Falcone’s hedge fund and now the renowned manager will take on the role as executive chairman with Harbinger having about 83 percent ownership of the entity’s 96 percent.

Davidoff notes that this story is just another example of SPACs purchasing crazy assets as they’re under the clock to stay away from dissolution. According to Australia Acquisition’s organizational documents, shareholders make the decision to either remain invested in the company or get rid of shares at the IPO’s offering price.

But there is a caveat in this situation. There has to be 92 percent or higher of shareholders choosing to redeem their shares for the transaction to not happen. In this situation, will this likely happen? For Falcone, he can add some much-needed liquidity for assets that don’t really appear to be so liquid. For the Australia Acquisition promoters, they’ll gain a return.

As Davidoff asks, “What will remaining shareholders who don’t redeem their shares get in this company?”

Good question and it opens the door for additional ones such as: What are they getting with Falcone? Why is he doing something now? What happens if this business goes awry just as Falcone’s LightSquared deal did? And who the heck is going to invest with him?


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