Skip to content


03 November 2017

Deal spotlight: warrants

We recently acted on a reverse takeover by an early stage biotech company (Target) of a standard list special purpose acquisition company (SPAC).

The SPAC had previously looked at completing a different acquisition and by the time the deal with the Target was completed, the SPAC had been suspended for nearly two years under LR 5.6.

As at admission, the SPAC had three groups of shareholders, namely the SPAC’s initial investors, the former shareholders in the Target (who were locked in), and new investors who invested in a £2m placing at 3.5pence. Since the SPAC had been suspended for so long, the board considered that there would be pent up pressure to sell as soon as the company was re-admitted from the SPAC’s initial investors.

To mitigate against this, we drafted a “lock in” warrant for the re-listed company.

The purpose of the warrant was to incentivise those shareholders who were shareholders as at admission by offering them a 1 for 2 warrant which would only vest if they were still shareholders 60 days after admission. Assuming the warrants vested, the subscription price was a small premium to the placing price of 4 pence and the warrants are exercisable any time within a further 2 years. The warrants are not listed and are freely transferable.

After the company was re-admitted, the brokers reported no wave of selling as had been feared and so it seems that the lock in warrant had some beneficial effect.

The board accepted that they would never completely address the practical problem of establishing to what extent someone has sold only a beneficial interest in the shares in order to pass on the warrant rights to a buyer, but the warrant instrument includes a clause allowing the board to require from any shareholder claiming their warrant to deliver a certificate of entitlement before the warrant certificate is issued.

This form of warrant represents a novel way of addressing potential selling pressure after a long period of suspension.

If you have questions, please refer to Chris Putt or Paul Arathoon.