Davis Polk & Wardwell Newsflash

NYSE Files Proposal to Allow the Listing of SPACs

March 7, 2008

Following a similar move by the Nasdaq Stock Market last week, the New York Stock Exchange (the “NYSE”) has filed a proposed rule change with the Securities and Exchange Commission that contains a new listing standard specifically for special purpose acquisition companies, commonly referred to as “SPACs.”  SPACs are companies with little or no operations that conduct a public offering with the intention of using the proceeds to acquire or merge with an operating company. Until now, the American Stock Exchange has been the only national securities exchange to list SPACs.

The NYSE’s current financial listing standards for operating companies require some period of operations prior to listing. Because SPACs have no operating history, they do not qualify for listing under the NYSE’s current standards. Under the proposed new standard, a SPAC seeking to list would need to demonstrate a total market value of at least $250 million and a market value of publicly held shares of at least $200 million (excluding shares held by directors, officers or their immediate families and other concentrated holdings of 10% or more). In addition, SPACs would have to meet the same distribution criteria applicable to all other IPOs. All of the NYSE’s corporate governance requirements applicable to operating companies would apply to SPACs.

The proposed rule establishes a number of requirements applicable only to SPACs, including:

  • a minimum of 90% of the IPO proceeds, together with the proceeds of any other concurrent sales of equity securities, must be placed in a trust account;
  • the SPAC’s business combination must be with one or more businesses or assets with a fair market value equal to at least 80% of the net assets held in trust (however, unlike the rule proposed by Nasdaq, there is no requirement that 80% of the consideration for the initial business combination be in cash); and
  • the business combination must be consummated within three years.

The NYSE would have significant discretion under the proposed rule.  The NYSE indicates in the rule filing that it intends to consider proposed SPAC listings on a case-by-case basis and does not necessarily intend to list every SPAC that meets the minimum requirements for listing.  In addition, after shareholder approval of a business combination, the NYSE will assess the continued listing of the SPAC and will have the discretion to delist the SPAC prior to consummation of the business combination.  Upon consummation of the business combination, the NYSE will consider whether the transaction constitutes an acquisition of the SPAC by an unlisted company (a “back door listing”), and if so, the resulting company must meet the standards for original listing or be delisted.

The NYSE proposal is subject to publication and approval by the SEC.

If you have any questions regarding this newsflash, please call your Davis Polk contact.

Davis Polk & Wardwell