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The New Blind Pools

Posted By Barry Ritholtz On December 11, 2005 @ 11:58 am In Investing | Comments Disabled

A fairly scathing article by Eric Savitz in Barron’s this morning on SPACs: The New Blind Pools [1]:

"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."

Spac_20051209214331 [2]

The New Blind Pools [1]
Barron’s MONDAY, DECEMBER 12, 2005      

Article printed from The Big Picture: http://www.ritholtz.com/blog

URL to article: http://www.ritholtz.com/blog/2005/12/the-new-blind-pools/

URLs in this post:

[1] The New Blind Pools: http://online.barrons.com/article/SB113417937240719118.html

[2] Image: http://bigpicture.typepad.com/photos/uncategorized/spac_20051209214331.gif

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