A fairly scathing article by Eric Savitz in Barron’s this morning on SPACs: The New Blind Pools:

"It’s the return of the blind pool, gussied up with a nicer name — the special-purpose acquisition company, or SPAC. Whatever you call them, the game is pretty simple: You buy shares of a company with no operations, and then that company takes the cash and goes shopping for something to buy.

Pure genius! No need to worry about investors finding holes in the business model, since the prospectuses for these deals can truthfully offer absolutely no substantial information about operations. The deals are sold on the strength of management, the allure of vague plans to invest in hot sectors like China, oil or offshore outsourcing, and a set of strictures designed to protect investors from the kind of unscrupulous operators that gave blind pools a bad name in the early 1980s . . .

Still, despite the safeguards put into place, SPAC investors are voluntarily flying blind; they don’t know what they’re buying. SPACs might provide a chance at a big score for their officers, and make nice playthings for hedge-fund managers. But for retail investors, they’re just Wall Street’s latest casinos. Enter if you’re a gambler, not an investor."

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Source:
The New Blind Pools
By ERIC J. SAVITZ
Barron’s MONDAY, DECEMBER 12, 2005      
http://online.barrons.com/article/SB113417937240719118.html

Category: Investing

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4 Responses to “The New Blind Pools”

  1. Jon H says:

    Where it says “80% of shareholders” does that mean 80% of shareholders, or holders of 80% of the shares?

  2. B says:

    Another example of too much money trying to find a home? This is an amazing time. People are uneasy about their futures, risks are high and their seems to be a growing spread between the haves and have nots in legacy economies yet there is just a massive pool of funds out there looking for a return.

    Will that drive all markets higher or will the grim reaper come a calling with a purging of excesses? It almost seems like locusts. Going from one investment to another. Oil, gold, global equities, platinum, SPACs, real estate, copper, forex markets, fixed instruments, etc.

  3. Josh says:

    As usual, Barrons scratches the surface then ignores the true story. These are not being marketed to retail investors as far as I can tell. If Savitz had looked at the Schedule 13 filings for these SPACs he would see that they are being gobbled up by hedge funds for investment purposes, not for delta neutral trading strategies. My guess is that funds like Amaranth LLC are buying portfolios of SPACs as a backdoor way to get involved in private equity. The terms are awfully generous to management, but hedge funds without the experience to run their own private equity portfolio would have to pay another layer of fees to participate in that game anyways, so it may not be that onerous. Regardless, they are not for me.