SoftBank-backed Southeast Asian ride-hailing company Grab has agreed to the world’s largest SPAC merger. The deal will allow Grab to list its shares on the New York Stock Exchange and reach a total value of $39.6 billion.
This is a significant development for both Grab and the US capital market, deserving further examination.
Introduction to SoftBank-backed Grab
Grab, a SoftBank-backed ride-hailing company, announced on March 25th that it’s going public in the biggest merger between a special purpose acquisition corporation (SPAC) and technology company.
Grab began in 2012 as an app for ridesharing and delivery services in Southeast Asia and has since grown to become one of the largest tech companies in the region. The latest funding round values it at $35 billion and it employs more than 130,000 people across 8 Southeast Asian countries. The SPAC merger will give Grab access to more capital to expand its services and allow investors to invest in a quickly growing tech company.
Besides offering ride-hailing services, Grab uses its massive data acquisition capabilities to develop products such as food delivery service GrabFood, digital payments platform GrabPay and e-scooter rental initiative GrabWheels. It also operates an accelerator program called GetIgnited, which serves startups worldwide.
Overview of SPAC merger
The Special Purpose Acquisition Company (SPAC) merger between Social Capital Hedosophia Holdings Corp. and Virgin Galactic Holdings, Inc. is the largest ever SPAC deal to list on the New York Stock Exchange (NYSE). This deal is expected to close in the third quarter of 2020, with a combined market capitalization of approximately $2.2 billion upon closing.
The merger combines two pioneering companies, each focused on its forward-looking mission: visionary investor Chamath Palihapitiya’s Social Capital Hedosophia (“SCH”) vehicle with a focus on digital industries and Sir Richard Branson’s publicly traded aerospace company, Virgin Galactic (“VGL”), with its goal of creating a better future through suborbital spaceflight experiences.
The transaction itself has been structured as an all-stock business combination – SCH will combine with VGL under the terms of a merger agreement in which VGL will become a publicly listed company and trade on the NYSE under the ticker symbol “SPCE” upon completion of the transaction. Accordingly, SCH shareholders will receive one share of SPCE common stock for each existing SCH Share held before closing, representing approximately 47% ownership pro forma post-closing after giving effect to VGL financing.
Upon completion of this transaction, VGL intends to use proceeds from strategic financings and SPCE share issuance to accelerate development and fuel commercialization efforts across its core space flight business segments as well as Sustainable Development Goals initiatives; current programs underway include Earth observation missions that advance our understanding of climate change and vision research aimed at fostering therapeutic psychiatry therapies in space environments that could help treat common mental health issues such as depression. In addition, proceeds from this transaction will enable further investments in Reaction Engines Limited – an Oxfordshire-based engine research & development facility – for developing advanced generation propulsion systems for next stage aviation machining capabilities that could enable higher speeds than current air travel can provide (including supersonic speeds).
SoftBank-backed Grab agrees to deal to go public in world’s largest SPAC merger
SoftBank-backed Grab recently agreed to a deal to make the company public in the world’s largest SPAC merger. This historic move is expected to revolutionise the transportation industry and usher in a new era of industry collaboration.
The deal details are still being finalised, but here is an overview of the financial side of the agreement.
Overview of financial details
Grab, the Singapore-based ride-hailing giant, is set to become the largest SPAC (Special Purpose Acquisition Company) merger of all time by going public on the New York Stock Exchange. This complex transaction will have numerous financial implications.
The deal values Grab at US$39.6 billion (S$51 billion) and involves two simultaneous transactions equaling US$4.5 billion in cash proceeds for Grab. The first transaction will raise approximately US$2.5 billion from issuing new Grab shares. The second transaction will be funded with US$2 billion in new private investments and existing shareholders reinvesting around US$1 billion of their shares.
As part of this move, a consortium of institutional investors and conglomerates such as Softbank Group Corp., funds managed by BlackRock Inc., Challenger Limited and Temasek are investing about US$3.3 billion into the company in preparation for its listing on NYSE.
In return for their investment, these investors will receive newly issued common shares from Grab at a price that values the company at around US 39.6 Billion; which further increases to an estimated US$46 Billion with their additional investment commitments through convertible notes and equity stakes from existing investors who convert their shares into membership units that are exchangeable for common stock upon completion of the merger agreement with Altimeter Growth Corporation (NasdaqGS: AGC).
Grab has also indicated that post-merger operations it would pursue organic or acquisitive growth opportunities beyond its traditional ride-hailing business, such as online payment platforms or delivery services – thus indicating potential upstream interests in related industries as well as geographic expansion aims outside of SE Asia which currently stands out as its current core market portfolio focus area.
Details of share exchange
In July 2020, Grab and Altimeter Capital announced the largest Special Purpose Acquisition Company (SPAC) deal in history with over $39 billion enterprise value. Both public and private investors will benefit from this groundbreaking all-stock transaction, trading their holdings for newly issued shares in the combined company.
Under the share exchange agreement, Altimeter will acquire a 14% stake in Grab for $11 billion by issuing 890 million shares of common stock. The transaction is expected to close in Q1 2021, subject to Grab shareholder approval and other closing conditions being met. Additionally, John Chambers’s JC2 Ventures will receive 18 million exclusive warrants to buy Class AGrab common stock shares at an exercise price equivalent to a 20% premium over the 180 day average trading price before close.
Furthermore, existing shareholders will benefit from three times voting power on their respective stocks held before the merger announcement. Altimeter shareholders can now exchange every pre-announcement share for 3 post-announcement shares with no limits and no tax liability incurred. Upon completion of the merger, public and private shareholders from Grab and Altimeter will become owners of Grab Holdings Inc., which is expected to list on the New York Stock Exchange in Q2 2021 under ticker code GRAB.
Impact of merger on Grab’s financials
The merger will have a big impact on Grab’s financials. The deal’s total value is estimated to be around $40 billion. In addition, it will immediately increase Grab’s cash reserves due to the approximate $4 billion investment from Altimeter Capital, Falcon Edge and Mubadala Investment Company.
As a publicly traded company, Grab can now broaden its investor base ensuring a long-term capital base and sustained market access. Additionally, the listing position on NYSE is expected to help improve access to financing, specifically for long-term “patient capital” investments in current and new overseas markets through debt or equity offerings.
Grab’s existing mega-investors like Softbank and Didi Chuxing will remain shareholders post listing, but their proportionate stake in Grab has been diluted. While this might seem disadvantageous initially, it also allows many investors to buy into what is being called Southeast Asia’s first unicorn after creating massive wealth over last few years.
On being listed publicly on NYSE, Grab will also be tagged as one of the most promising companies in the field due to its growth trajectory it has maintained so far surpassing revenues more than sevenfold since 2017 and recent technological advances made by them with their introduction of AI driven content delivery services such as Raya Delivery. All these developments are expected to positively affect Grab’s bottom line. At the same time, they prepare for debuting on NYSE not before April 2021 when all regulatory approvals should be said and done from both sides i.e., New York Exchange and Singapore Stock Exchange (SGX).
Regulatory Considerations
With Grab’s merger deal in the world’s largest SPAC merger making headlines, it is important to look closely at the regulatory considerations accompanying it.
It is essential to understand the implications of this transaction on Grab and its stakeholders. Therefore, this section will examine the various regulatory considerations that come into play with such deals.
Overview of regulatory considerations
Before listing on a major exchange like the New York Stock Exchange, Grab’s management must address several regulatory considerations. First, a company seeking a stock listing must be incorporated in the United States as a Delaware corporation and comply with applicable U.S. securities laws, including Section 12(g) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which requires companies that issue equity securities having a class of equity securities held by more than 500 persons to register with the Securities and Exchange Commission (the “SEC”).
In addition, Grab must prepare audited financial statements by Generally Accepted Accounting Principles (GAAP), apply for an SEC trading symbol for its Common Stock, publish press releases regarding all material corporate activity, prepare a Form 10 registration statement and submit other filings required by the SEC before undergoing an initial public offering or under other public listing requirements.
Grab must consider and address other ongoing corporate governance requirements such as shareholder communications via press releases or investor relations initiatives; dividend distributions; periodic reporting on Forms 10-Q, 8-K and 6-K; executive compensation; proxies and annual reports by the Sarbanes Oxley Act. Additionally, Grab will incur significant costs related to establishing corporate infrastructure such as legal fees related to incorporation; outside accounting services; underwriting services if conducting an IPO; fees incurred with filing any SEC documents such as Form 8-A regarding registration related matters.
Finally, Grab must also comply with state blue sky laws governing offering securities within each state where it intends to offer common stock of publicly traded corporations.
Regulatory approval process
The process of obtaining regulatory approval to list a stock on the New York Stock Exchange (NYSE) involves the SEC and FINRA. In addition, the company must meet requirements of several regulations to become eligible for listing, including those governing financial and operational matters.
SEC Approval
The first step in obtaining approval from the SEC is filing a Form 20-F to register with the SEC as an issuer. Once this step is completed, the company must file a Registration Statement on Form 8-A displaying its financial and operational information necessary for analysis. This process phase can be lengthy due to its extensive nature; however, if approved, the stock can commence trading on the NYSE within a month following completion of all regulatory requirements.
FINRA Approval
Upon completion of SEC registration and filing procedures, FINRA will begin evaluating operations such as business practices, customer complaints, sales activities, management background checks etc. While FINRA evaluates these aspects separately from their respective SEC evaluation processes, they work simultaneously with other regulators to assess any potential risks associated with listing on their exchange so that only companies that are deemed responsible are allowed to list securities there. Once FINRA has completed its evaluation and approved trading activity within NASDAQ or NYSE listed exchanges respectively for company stocks or securities being traded by public investors.
Potential hurdles to approval
When companies consider going public through a special purpose acquisition company (SPAC) merger, there are often potential hurdles to approval. As Grab, Inc., pursues what may be the world’s largest spac merger to date, it is important to consider any potential regulatory risks that may arise between now and closing. Before a successful SPAC merger can be completed, both sides must file with the Securities and Exchange Commission (SEC) for approval.
In assessing regulatory considerations for the proposed Grab-Altimeter Asia SPAC merger, potential hurdles could include:
- Any material changes or undisclosed information on either side.
- Items that may raise red flags under securities law such as insider trading or manipulation of data.
- Legal compliance in jurisdictions involving multiple countries with significant differences in local rules.
- Meeting accounting standards laid out by Generally Accepted Accounting Principles (GAAP).
In addition, altimeters would need to evaluate if other regulators such as antitrust bodies have any influence over the transaction.
The SEC also requires completion of specific forms including the S-4 form, which contains disclosure documents related to the transaction. It is crucial to ensure all financial statements are up-to-date and accurate given ample scrutiny before approving a SPAC merger. All corporate systems must be compliant and updated so that these documents can accurately reflect current operations and provide long term clarity when needed for due diligence purposes and other conflicts bound to arise over time as part of this process.
The parties involved should consider timing considerations based on filing requirements from foreign governments or other regulators who might need to approve or deny permission on a case-by-case basis. In sum each party must carefully consider regulatory matters before submission to understand potential issues in advance.
Impact on Market
The SoftBank-backed Grab’s agreement to go public in the world’s largest SPAC merger has the potential to cause a tremendous ripple effect in the stock market.
The merger values the Southeast Asian ride-sharing firm at a staggering $40 billion, and will likely cause a seismic shift in the market.
Let’s dive into what this could mean for the stock market.
Impact on Grab’s stock price
The news has only been made public recently, but the potential listing of Grab on the New York Stock Exchange through the SPAC merger has generated considerable interest amongst investors. This is especially so given the increasing tech-focus of SPAC listings.
Investors have responded positively to the news, significantly driving Grab’s stock price. Since April 2021, when rumours of a potential listing first began circulating and prior to confirmation in May 2021, Grab’s stock price had risen from $50.35 per share to $58.51 per share at midday on Friday 4th June 2021 – a climb of 16% in less than two months!
On Monday 7th June 2021 at market open, Grab’s stock opened at $60.00, representing a further increase since before confirmation by 8% within three days and 20% since rumours first began circulating – a significant increase for any company’s stock in such short time frames.
Speculation regarding future performance is yet to be seen and will require an observation not just over the next few days but weeks and months to come before one can assess whether this is a prudent investment or not; however if we had to take an initial look there are undoubtedly signs that suggest investor’s should look favourably upon Grab with regards to its market prospects on NYSE.
Impact on SoftBank’s stock price
The announcement of Grab’s plan to list in the US through a SPAC merger, backed by SoftBank Group Corp., could significantly impact the Japanese firm’s stock price. It is widely expected that SoftBank will benefit from the transactions as it invested around $2 billion in Grab and will be able to increase its stake to 36%, from 16%, investing nearly $3.5 billion fresh capital after Grab’s public listing.
SoftBank’s stock, facing a downward trend due to its large derivatives losses and tech investments, is likely to see upward momentum due to the flotation-related gains. However, the further upside in SoftBank’s share price will depend on how Grab’s IPO pricing pans out and the percentage of dilution following the NYSE listing.
This news comes after Verizon Communications Inc was reportedly considering a combo of SPAC merger route and direct listing as options for its recently acquired media business’s listing too. If both Tokyo-based Softbank and New York-based Verizon go ahead with their respective plans, then two giants with huge cash reserves are likely to be listed as publicly traded firms by end of 2021, marking a new era for Japan-US cross border transactions at an unprecedented scale and driving investors’ appetite for such deals higher.
Impact on overall market
The planned merger of Grab and Altimeter Growth Corp. can potentially create one of the largest SPAC mergers the US market has ever witnessed. As a result, it’s expected to significantly impact the overall market, both in terms of investment opportunity and technological innovation.
The combined company, known as “Grab Holdings,” is expected to have a broadened portfolio of services, including food delivery, financial services, ride-hailing, and even electric vehicle charging. This will mean an expanded investor customer base and an enhanced presence in Asia Pacific markets.
From a technological standpoint, analysts say Grab’s combination with Altimeter may help catalyse the digital transition across multiple sectors in Southeast Asia — from payments to logistics and beyond — which is timely considering the region’s increasing online penetration rate and unprecedented potential for growth.
Overall, Grab’s listing on the New York Stock Exchange is viewed as a milestone move for emerging markets such as Southeast Asia — it not only boosts capital flows into such regions but also facilitates cross-border investment opportunities and provides better access to global financial markets for these countries’ firms. This can be seen as another giant step toward creating greater openness in capital markets.