Regarding SPACs, a topic on which we continue to receive many inquiries, a very interesting case has recently emerged that we would like to introduce.
Note: For details on the standard SPAC listing scheme, please see this article:
“A Look Behind the Scenes of a U.S. SPAC Listing, Explained Using the Largest Deal of 2020“
A Foreign Company Lists on Nasdaq as an FPI via a SPAC
In October 2020, 4D Pharma plc (a UK biotech venture listed on London’s AIM) announced it would merge with Longevity Acquisition Corporation (a U.S. SPAC established in 2018) and list on Nasdaq.
Under a standard scheme, the SPAC acquires the operating company, and the entity is ultimately listed as a U.S. corporation. In this merger, however, the 4D side was the acquiring company and the SPAC was the acquired company. This allowed the UK-domiciled 4D to survive, and it successfully listed on Nasdaq in March 2021 as a Foreign Private Issuer (FPI).
Through this transaction, 4D Pharma raised approximately USD 15 million from the SPAC and an additional USD 25 million from a simultaneous PIPE investor, Merck Sharp & Dohme Corp., procuring a total of USD 40 million.
The SPAC Listing Scheme Using ADRs
In this scheme, ADRs (American Depositary Receipts)—securities issued in the U.S. backed by shares issued by a foreign company—were used as the consideration for the SPAC shareholders. The specific scheme was as follows:
- 4D Pharma establishes a wholly-owned shell company, Dolphin Merger Sub Ltd., in the British Virgin Islands (BVI).
- Dolphin Merger Sub Ltd. acquires the SPAC, with Dolphin surviving the merger.
- Simultaneously, 4D Pharma deposits its own shares and issues ADRs.
- The SPAC shareholders are granted 4D Pharma’s ADRs as consideration.
As a result, 4D Pharma’s ADRs were listed on Nasdaq, becoming available for public trading.
It is noted that 4D Pharma has maintained its AIM listing even after its Nasdaq listing, resulting in a dual listing (ADRs account for approximately 1/3 of 4D Pharma’s issued shares). This listing scheme was reportedly the first of its kind in the world, structured by J.P. Morgan.
A Scheme Applicable to Japanese Companies
Until now, Japanese companies have faced many challenges with U.S. SPAC listings. One of those challenges was that being acquired by a U.S.-domiciled SPAC meant the Japanese company would, as a result, become a U.S. corporation.
If it is possible to list as an FPI, the company can utilize the benefits afforded to FPIs, such as:
- Flexibility in corporate governance structure (e.g., while the U.S. requires the adoption of a committee-based system, FPIs can use a Company with an Audit & Supervisory Board structure based on Japanese law).
- Exemption from detailed individual disclosure of director compensation.
- Exemption from disclosures related to related-party transactions.
- Simplified ongoing disclosure, including quarterly reporting.
- The “staleness” (expiration) period for financial statements to be included in an SEC registration statement is 15 months, which is longer than for U.S. domestic companies.
Considering the risks and burdens associated with becoming a U.S. corporation, and the advantages of being able to use FPI status, this scheme can be said to be extremely effective.
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