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Goldman Finds Liberty Lane IPO a Tough Sell

NEW YORK (Reuters) – Goldman Sachs' (GS.N: Quote, Profile, Research) efforts to launch a new kind of “blank-check” company, Liberty Lane Acquisition Corp (LLACU.O: Quote, Profile, Research), is getting the cold shoulder both from hedge funds that had snapped up these takeover vehicles and from the traditional stock buyers they hoped to win over.

The initial pricing of Liberty Lane shares has been postponed twice, first last week and again on Tuesday night, as Goldman struggles to fill out its order book. Goldman, the sole underwriter, was still marketing some 35 million units at $10 a unit on Wednesday.

Experts on the blank-check market, saying they are reluctant to bet against a powerhouse like Goldman, said a deal could still get done Wednesday night.

Even so, the delays show that Liberty Lane's unique terms have made it a tough sell, even with Goldman's endorsement — especially in a SPAC (special purpose acquisition company) market that has cooled in the past year.

“The delay may be a sign of a tepid investor response to the revised structure,” said Linda Killian, manager of Renaissance Capital's IPO Plus fund. “It's also not exactly a great time to launch a deal.”

A Goldman spokeswoman declined immediate comment.

SPACs are shell companies that raise money and hunt for takeovers. They pay a rich dividend and have to liquidate after a specified period — usually two years — if they do not identify an acquisition that wins shareholder approval.

Last year, Wall Street managed offerings for 60 special purpose acquisition companies, or SPACs, raising more than $12 billion last year, or a quarter of domestic IPO activity. But recently the market has cooled off. 

No blank-check company with a market cap over $50 million has priced since late February, according to Renaissance, a Greenwich, Connecticut, firm that tracks the IPO market. Meanwhile, many of the blank-check shares issued over the past year have traded down.

Liberty Lane, Goldman's first foray into the field, was designed to appeal to traditional buy-and-hold stock investors. The problem with most SPACs, analysts said, is that hedge funds and other traders could buy the shares when they traded below net asset value and then reject every deal.

This strategy guaranteed a rate of return for short-term traders but worked against the original purpose of the blank check, which was to give investors a chance to profit from smart deals.

So Goldman changed the terms of Liberty Lane to fend off short-term investors — management is putting up just 1 percent of capital and receiving a smaller stake than normal. The new company has a smaller “trust pool,” the escrow account that holds IPO proceeds until a deal is completed.

Each unit will contain one share and half a warrant, rather than the usual one share and one warrant, reducing potential dilution to shareholders. Management will receive just 7.5 percent of the company, below the usual 20 percent.

By making shares that are less attractive to traditional SPAC buyers, Goldman is gambling it can be the first to sell a blank-check offering to an audience of long-term investors.

“The question is can Goldman sell a deal almost entirely to fundamental buyers? If they can, it will revolutionize the SPAC market,” said Michael Tew, co-founder of SPAC Research Partners in Palo Alto, California. “And right now, this is an incredibly challenging environment for new SPAC issuance.”

By Joseph A. Giannone

(Editing by Gary Hill)