SoftBank Son puts new spin on SPAC mania

It seems like everyone’s launching a special purpose acquisition company these days, but you could have bet on Softbank Group Corp maestro Masayoshi Son and his lieutenant Rajeev Misra finding a way of putting an eyebrow-raising spin on the blank-check phenomenon. They haven’t disappointed.
Their SPAC, SVF Investment Corp, plans to raise at least $525 million from investors in an initial public offering and will use that cash to find a technology company to merge with and take public. The SPAC’s sponsor is controlled by SoftBank Investment Advisers, which also oversees the $100 Billion Softbank Vision Fund.
SVF plans to buy a company SoftBank hasn’t previously invested in, Bloomberg reported.
The surprise twist is that it could indeed decide to merge with a SoftBank-backed business, if it wanted. “We are not prohibited from pursuing an initial business combination with a company that is affiliated with our sponsor, officers or directors,” the prospectus states, leaving the door open for the SPAC to join forces with one of the Vision Fund’s many venture capital investments, for example.
Unlike some sponsors who put little of their own money at risk, SoftBank entities are ponying up at least $250 million to participate in whatever deal the SPAC chooses. Even so, a transaction between two Softbank subsidiaries would create a conflict of interest that’s best avoided. The conflict arises because the Vision Fund’s goal should be to maximise the value of its investments by negotiating as high a valuation as possible with whoever wants to buy one of its portfolio companies. By contrast, a SPAC should try to acquire a business for as little as possible. This way it maximises the returns to other SPAC investors, who buy shares hoping to see a “pop” once a deal is announced. It also helps overcome the high costs embedded in the SPAC structure, including the large block of free shares the sponsor receives (known as the “promote”).
SoftBank says this conflict is easily resolved: It will obtain an opinion from an investment bank that the transaction terms are fair. The prospectus acknowledges, however, that potential conflicts may still exist and therefore “the terms of the business combination may not be as advantageous to our public shareholders as they would be absent any conflicts of interest.”
Why blur the lines like this? SoftBank’s companies aren’t short of options for how to join the stock exchange. DoorDash Inc’s blistering IPO has turned the SoftBank
Vision Fund’s $680 million private-market investment in the food-delivery company into a public stake worth about $10 billion.
If a regular IPO or direct listing isn’t attractive to Vision Fund companies, there’s always the couple
of hundred other SPACs who’ve raised tens of billions of dollars this year and are looking for bright technology prospects with which to merge. Until recently, start-ups were staying private for longer, which meant the Vision Fund had its pick of companies to invest in.

—Bloomberg