The Ministry of Economic Affairs and Digital Transformation published on May 5 the Securities Market and Investment Services Draft Bill (the “Draft Bill”) that, among other things, regulates SPACs in Spain.
SPACs (“Special Purpose Acquisition Companies”) are public limited companies incorporated for the purpose of “acquiring” all or part of the share capital of another operative company or companies. SPACs are not initially identified and their sole activity up to then is (i) the initial public offering; (ii) the request for admission to trading; and (iii) the activity leading to the “acquisition.” This transaction (called “de-SPAC”) may be carried out by way of a purchase, merger, spin-off, non-monetary contribution, global assignment of assets and liabilities, or other similar transactions.
SPACs provide an alternative mechanism to traditional IPOs. As explained in the Preamble to the Draft Bill, this vehicle is particularly interesting for developing companies, as it favors diversification of financing sources, while fostering the securitization of the Spanish economy and reducing dependence on bank financing.
These not-so-new vehicles have proliferated in the last two years in some countries, especially in the US, and are becoming increasingly popular in European economies.
In light of the characteristics that define shareholders’ investment in (and, particularly, divestment from) such vehicles, their applicability in the Spanish legal system requires a reform of corporate and securities market regulations. This regime would apply both to SPACs admitted to the Stock Exchange(s) and to BME Growth, and it would lapse once the de-SPAC transaction is completed.
These companies must include in their corporate name the indication “Sociedad cotizada con Propósito para la Adquisición” (Spanish for special purpose acquisition company) or its abbreviation “SPAC, S.A.” until the planned acquisition is concluded. In addition, the funds obtained by the SPAC from the public offering will be blocked in a bank account opened in its name, as a mechanism to guarantee that the investors’ capital is adequately protected, so that it can effectively meet the obligations arising from the de-SPAC process.
Unless they undertake to carry out a share capital reduction through the acquisition of its own shares for subsequent redemption, SPACs must incorporate at least one of the following repayment mechanisms for the capital invested by shareholders:
- Introduction of a statutory right of withdrawal once the planned acquisition or merger is announced, regardless of the shareholder’s vote in the relevant meeting (unlike what art. 346 of the Spanish Companies Act or LSC provides for legal causes of withdrawal).
- Issue of redeemable shares, without applying the maximum limit and the provisions of art. 500 and 501 LSC. The shares may be redeemed within the term established by the SPAC, at the request of the existing shareholders on the date set for that purpose, regardless of their vote.
The share redemption value, whether determined as a right of withdrawal or as redeemable shares, will be the price of the public offering prior to admission to trading of the SPAC’s shares or, if lower, an amount equal to the corresponding percentage of the cash blocked in the bank account opened upon its incorporation.
If repayment is made through a capital reduction, the SPAC might be required to file a takeover bid due to capital reduction.
Any of the three repayment mechanisms could lead to a takeover of the SPAC by one or several shareholders. Under art. 7 of Royal Decree 1066/2007, such shareholder must then file a takeover bid for the SPAC within three months, unless: (i) enough shares are sold within that term to reduce the voting right percentage below the control threshold (30%), and the excess voting rights are not exercised during that time; or (ii) a waiver is obtained from the CNMV if there is another shareholder with a higher interest in the share capital (under art. 4(2) of Royal Decree 1066/2007).
It would be advisable to provide an exemption from the mandatory takeover bid that could arise from the de-SPAC process. Generally, the target company is approximately between two and five times larger than the SPAC. Depending on how the transaction is structured, this often enables the controlling shareholders of the target company to take control of the combined company. The existing exemption for industrial mergers (art. 8(g) of Royal Decree 1066/2007) might not be directly applicable—especially when the de-SPAC is not carried out through a merger.
The Draft Bill seems incomplete, since it only adds two new articles to the Spanish Companies Act while announcing that the regulation will cover art. 535 bis to art. 535 quinquies. The public hearing procedure of the Draft Bill ended on May 25, 2021. Based on the comments received, a new version will be drafted and submitted for approval by the Council of Ministers and presented to the Spanish Parliament for consideration.