A SPAC Will Buy Back Its Own SPAC and Pay a Staggering Premium

(Bloomberg) -- It’s the latest twist in the world of blank-check mergers: A company plans to go public with a SPAC and use it to buy back an affiliate that it took public using another SPAC.

This circular scenario revolves around a drugmaker called Roivant Sciences Ltd., which wants to merge with a special-purpose acquisition company and then take over a SPAC that acquired Immunovant Inc. from Roivant less than two years ago.

What’s more, Roivant says it knows something that everyone else doesn’t about its former unit, and it’s willing to pay a premium for the shares -- perhaps as much as 70% by one estimate.

A SPAC-on-SPAC deal is such an oddity that people who follow shell companies can’t remember it happening before, or anything like Roivant’s head-spinning version. “In the years I’ve been analyzing SPACs, I’ve never seen a transaction like this,” said Neil Danics, founder of SPAC Analytics in Toronto and who has been providing research on the industry since 2007.

Roivant outlined the machinations in regulatory filings amid wobbling enthusiasm for SPACs, which collectively have lost about a quarter of their value since their February peak amid tighter scrutiny from regulators. They’re called blank-check companies because they raise money from investors with the goal of buying an existing private business, typically without identifying a target.

In this case, Roivant already said in a March filing it wants to re-acquire Immunovant, which is testing a treatment for autoimmune diseases. There’s a whiff of hidden value, because Roivant specifically said it’s willing to pay more than the current price, a premium that Robert W. Baird & Co. estimates could amount to $1.1 billion. Immunovant now trades around $15 a share with a market value of about $1.5 billion.

“If you can raise a bunch of money with a SPAC and then use that relatively cheap cash to buy a company at a valuation they find attractive -- that seems like a rational approach,” says Nikolai Roussanov, a finance professor at the University of Pennsylvania’s Wharton School.

The plan goes like this: Roivant has proposed to be acquired by a SPAC called Montes Archimedes Acquisition Corp. in a combination valued at about $7.3 billion, according to filings. Roivant would be the surviving entity, and in turn, would offer a mix of stock and cash to buy up shares that it doesn’t already own in Immunovant, an early-stage drugmaker. Roivant spun that off in 2019 into a SPAC called Health Sciences Acquisitions Corp., in return for shares and other considerations initially valued at $395 million.

Monoclonal Antibodies

The reason Roivant is willing to pay up isn’t immediately clear. Human trials on Immunovant’s main prospect, a monoclonal antibody injection aimed at ailments such as myasthenia gravis and thyroid eye disease, were halted February 2 because of concern about potential side effects.

Managers at Roivant are pushing ahead anyway, saying that as the parent company with a 57.5% stake, they’ve received “non-public” information about Immunovant. Roivant representatives declined to comment on the transaction. Completion of Roivant’s deal with Montes is expected in the third quarter, and more data about Immunovant’s drug may come out by then.

“The market would be happy with a premium transaction,” Baird’s Brian Skorney said about Immunovant, whose shares trade about 11% higher than when it merged with Health Sciences. “There’s been some ambiguity -- concerns about safety problems that cut the stock in half from highs. Maybe Roivant knows it’s a moderate issue.”

Roivant itself shows a paper gain of about 117% on Immunovant, with more than half coming from “earnouts” that granted Roivant more shares when milestones were met. They were worth a lot more back in February, before Immunovant plunged from more than $43 after pausing a trial of its IMVT-1401 for thyroid eye disease, citing elevated total cholesterol and low-density lipoprotein or LDL.

SPACs, Spinoffs

Roivant is no stranger to drug development. Led by charismatic co-founder Vivek Ramaswamy since 2014, it houses several early-stage biopharmaceutical units, and has spun out several companies using traditional IPOs and SPACs.

The company historically operated as an in-licensing drug developer, buying rights for other companies’ drugs to further develop them. At last count, its 800 employees worked on more than 40 potential medicines with two approvals from the Food and Drug Administration. Ramaswamy stepped down as chief executive in January to become executive chairman, with finance chief Matthew Gline taking his place.

“I want Roivant to be seen as a next-gen pharma company,” Gline said in an interview. He pointed to recent investments in computational tools for drug discovery as well as drug development, including Roivant’s acquisition of Silicon Therapeutics.

Some holders didn’t wait to see how it all turns out. Adage Capital Partners sold its entire stake in Immunovant during the first quarter. RTW Investments LP -- which is providing bridge financing for Roivant’s SPAC deal with Montes -- cut its holdings by 16% to 6.36 million shares, leaving it with a 6.5% stake. Representatives for Adage and RTW didn’t respond to messages.

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