| Churchill Capital Corp. IV is a special purpose acquisition company, a pot of money worth about $10.00 for each share that it issued. Its stock closed yesterday at $22.90 per share, which is more than $10.00. This is because it has announced a plan to merge with Lucid Motors Inc., an electric-vehicle company, and Churchill shareholders are excited about this merger and think it is a good deal.[1] If Churchill closes its deal with Lucid, Churchill shareholders will have Lucid stock that they think is worth $22.90. If it does not close its deal with Lucid, they'll get their $10 back in cash. They would prefer the $22.90.[2] They would prefer the $22.90, but they would not necessarily prefer it enough to do anything about it: The blank-check company seeking to buy electric-car startup Lucid Motors Inc. made a last-minute appeal for retail shareholders to vote for the deal amid signs that it's struggling to win their approval. Churchill Capital Corp. IV, the special purpose acquisition company started by investment banker Michael Klein, adjourned its Thursday shareholder meeting that was to determine the fate of the merger, pushing the decision back to the following day. It also appealed again in a new statement for shareholders to sign off on the deal. Churchill's shares fell as much as 4.8% before retracing about half the loss. "The company still needs additional votes to obtain approval for that proposal by a majority of its outstanding shares," according to the statement. "As a result, the meeting has been adjourned to obtain the required votes." … "We welcome all of the new shareholders," Klein said. "However, we need you to participate in the election process. In particular, if you are participating from the new trading platforms, the new apps that may not necessarily be directing you clearly to a voting service, we need your vote," Klein said. He added that the process "literally takes one minute." Multiple notices have been sent to shareholders, with Lucid Chief Executive Officer Peter Rawlinson singling out Robinhood users "with those diamond hands" in a video posted to social media earlier this week. The voting deadline was extended Thursday morning just hours before the meeting was set to take place. Churchill also asked investors who were holders of record to vote even if they've already sold their shares.
It worked out fine; they approved the merger this morning. Virtually everyone who voted — "approximately 98% of votes cast" — voted yes.[3] But they needed a majority of Churchill's total shares outstanding to vote yes, and it was a struggle just to get enough people to vote.[4] And this is for an obviously good deal, one where the stock was trading much higher ($22.90) than the cash value ($10) of the SPAC. There was a ton of enthusiasm for this merger and it still struggled to get approved. For deals with less enthusiasm that could be a problem. The problem was some combination of: - Lots of SPAC investors — particularly in hot electric-vehicle SPAC deals like Churchill/Lucid — are retail shareholders who have never bothered to vote their shares, either because they are inexperienced and new to investing or just because there is almost no context where a retail shareholder's vote could possibly matter. Voting on nonbinding say-on-pay proposals, or even mergers, rarely matters because most companies' shareholder bases are dominated by institutions with lots of shares, so you figure the institutions will decide the question and it's not worth voting your 10 shares. Here, there are fewer institutions,[5] so your shares are worth voting.
- Relatedly, if you bought your shares on Robinhood, Robinhood is not exactly laser-focused on getting you to vote. ("One person involved in the Lucid deal said: 'Robinhood needs to focus on this. It's not right for their users.'")
- The stock trades like 10 million shares a day. (There are 207 million shares outstanding.) The record date for the vote was June 21. If you owned stock on June 21, you get to vote. If you bought stock after June 21, you don't. If you owned stock on June 21 and then sold it, you still get to vote. But you are unlikely to care very much. "Stockholders as of the close of business on June 21, 2021, the record date for the Special Meeting, should vote their shares even if they no longer own them," said Churchill in its press release yesterday, but why should they? It doesn't affect them anymore. They sold their stock; if the merger fails, they keep their money, and can have a good laugh at the people who bought the stock from them.
To the extent SPACs are owned by rapidly day-trading retail shareholders, this is going to be a continuing problem. The good news is that the retail day traders seem to be particularly concentrated in the hottest SPACs, which have the highest prices, so their holders have the most incentive to actually vote. A SPAC that announces a deal and trades to $10.15 is not going to get all that much enthusiasm, but nor is it going to attract hordes of Robinhood traders who just forget to vote. Churchill did attract those hordes, and they did forget to vote, but eventually it was able to track them down and point out that it was in their best interests to vote. In the U.S., the principal legal difference between a "public" company and a "private" company is that you have to be rich to buy shares of a private company, while anyone can buy shares of a public company. Public companies' stocks trade on the stock exchange, and anyone can open a brokerage account and buy stocks. Private companies' stocks trade in private transactions, which are subject to more complicated rules, but generally speaking if you are an "accredited investor" you are allowed to buy them.[6] The way to qualify as an accredited investor is, traditionally, to have enough money: a net worth (excluding primary residence) of at least $1 million, or income of at least $200,000 per year (or $300,000 for a couple). Recent amendments to the accredited-investor rules allow you to be accredited by knowledge (basically having a securities license) rather than money. And of course basically any institutional investor will be "accredited." So the rough traditional rule is that anyone can buy public stocks, but only institutional investors, hedge funds, dentists, doctors, lawyers, professional athletes, small-business owners … honestly it is quite a long list of people who can buy private stocks? "Accredited investor" used to be a pretty exclusive category, but it is much less exclusive today. "When the SEC first set its rules of entry for private markets in 1982, only 1.5 million households made the cut"; by 2018, even before the recent amendments to expand the definition, that number was "more than 16 million U.S. households—about one in eight." But this legal difference dramatically understates the practical difference between public and private companies. If you are a prosperous dentist, you are allowed to buy shares in private companies, but most private companies won't sell you any shares. When private companies want to raise money, they go to big investors — venture capitalists and private equity funds but also mutual funds and hedge funds and strategic investors and SoftBank — and raise large chunks of money. And they typically restrict those investors from reselling their stock, so a market doesn't really develop. And whereas public stocks trade on the stock exchange and you can see the price and put in an order to buy, private stocks, even when they do trade, usually don't trade on an organized exchange and you can't just buy them through your broker. You have to know the person who's selling them, if you want to buy them. And if you want to sell them, you have to know someone who's looking to buy. One result of this is that, if you are a prosperous dentist, you can buy the same stock in the same public companies on the same terms as the fanciest hedge fund, but your universe of private investment opportunities will be totally different from the options available to brand-name venture capitalists and SoftBank. You will never see any of the deals they see, and they will never see any of the deals you see. Probably the deals you see will be worse! Because they have lots of money and sophistication, and you have just enough money and sophistication to be accredited. If you run a company, you might want to be public. There are various advantages to that; the main one is that you can raise money from absolutely anyone. Not so long ago, I was fond of downplaying this advantage: Private markets were absolutely awash in money, it was easy to raise billions of dollars from large institutional investors, and the main advantage of public markets — that they were where all the money was — was diminished. The meme-stock rally has changed my perspective. Now public companies can raise hundreds of millions of dollars in a few hours at enormous valuations in at-the-market offerings to wildly enthusiastic retail investors, which you can't do if you're private. That does seem like a big advantage to being public? Still, you might instead want to be private. There are various advantages to that. One is that you don't have to file lots of disclosure documents (with risk factors, descriptions of your business, audited financial statements, etc.) with the Securities and Exchange Commission. You save money on lawyers, you get to be a bit more secretive, you get sued less, etc. Another advantage is that you get to control your shareholder base. You can sell stock to investors you choose, and you can restrict their ability to resell it. If you don't want activists or corporate raiders or short-term-focused Wall Streeters or competitors or whoever to buy your stock, you don't let them. You can't generally do that as a public company. But is there a compromise? Like what about this? - You are legally not a public company and don't have to comply with the SEC's disclosure rules; but
- You can sell stock to as many people as possible, and those people can resell their stock to as many people as possible, on some sort of centralized exchange that can match up buyers and sellers efficiently rather than by word of mouth; but
- If there are particular people who you don't want buying your stock, you can ban them.
You could imagine a category like "as public as possible without actually being public." Your stock trades electronically on a centralized exchange, there are market makers and quoted prices, and anyone who wants to buy it can buy it as long as they are accredited,[7] which is a minority of Americans but now a fairly large minority. (And an even larger minority of people who buy stocks.) If you want to raise money, you can try to sell stock to all the dentists who trade on the exchange, though realistically the more appealing option is probably to sell stock to big institutions but promise them liquidity in the form of being able to resell their stock to the dentists whenever they want. The appeal for companies is the broadest possible access to capital without being public: You can sell to venture funds and hedge funds and mutual funds and everyone else who invests privately, but also dentists. The appeal for institutional investors is: You can buy stock in private companies and resell it, to dentists or to other institutions, in a fairly liquid and transparent market. The appeal for dentists is: You can buy stock in private companies that have institutional investors, instead of private companies that only pitch their stock to dentists. There are also obvious benefits for intermediaries. The appeal for the private-company exchange is of course that you can charge higher fees to investors than a public exchange would. The appeal for brokers — the investment banks and broker-dealers who would ordinarily be matching buyers and sellers of private-company stocks — is that their job is a lot less labor-intensive if people are just putting in orders to buy or sell private stock on an exchange. Anyway: In the past year, a spate of companies have launched private trading platforms to keep up with market demand for access to assets that are not publicly traded, including those that haven't yet been tapped by a private equity or venture firm. Most recently, Nasdaq, SVB Financial, Citi, Goldman Sachs, and Morgan Stanley on Tuesday announced a joint venture to build a secondary trading platform for institutional investors. The platform will allow investors to access and execute private company stock transactions using technology. According to the announcement, this will increase transparency for investors. "The one thing that I think we can all agree to at this point is that the secondary markets are not a moment in time need," Eric Folkemer, president of Nasdaq Private Market, told Institutional Investor. "Many of the stakeholders or employees expect it to a degree, especially as companies are staying private longer." ... Nasdaq Private Market isn't the only firm entering the industry, though. CartaX, for instance, launched its business earlier this year, pitching liquidity for private company shareholders and access to these assets for institutional investors. Meanwhile, InvestX, a private equity marketplace for broker-dealers that has been operating since 2014, launched GEM, its trading platform, in February. "I did a lot of research on private markets, and I saw a growing market, one that was pistol hot," said Brian Schaeffer, managing director at the firm, by phone. "Demand was so great that you could see that the SEC would have to pay attention." … "The SEC is going to look at this and look at it very hard," Schaeffer said. For one, he added, the regulatory body is looking to redefine what an accredited investor should look like, which could change the clientele of these platforms.
The pitches here seem to be mostly about liquidity for employees and trading opportunities for institutions; nobody has quite come out with a "be as public as possible without being public" pitch to companies, or for that matter made a big push to sign up every dentist in America to their private-company exchange. To be fair, my tag line here — "private markets are the new public markets" — was more true a few years ago; public markets have had a bit of a resurgence recently as a lot of the big crop of recent unicorns have gone public, SoftBank's money has lost some of its allure, and the meme-stock craze has made companies appreciate the benefits of being public. It is not clear that many companies would actually want this combination of being technically private while having maximum access to investors, or that many dentists would actually want to sign up for this platform instead of just trading public stocks on Robinhood. Still I kind of want someone to try. I enjoyed this profile by Kate Clark of Matt Mochary, a "leadership consultant and former startup founder" who coaches founders and chief executive officers: Mochary, 52, guides the founders using tactical business lessons gleaned from his career as a founder and private equity investor, such as how to negotiate compensation with their boards. These he blends with spiritual practices, such as meditation for stress release and "energy audits" to help founders realize what tasks sap them of energy. Those tasks must be delegated, he says. By taking his advice, executives can find their "zone of genius," and learn how to run a company well, he said in a Zoom interview from his home in Kauai, Hawaii.
It is pleasingly specific: What he offers is the "Mochary Method," which includes the belief that CEOs should focus only on the tasks that bring them energy and that they love. "[I] teach founders how to create deep relationships, how to create trust," Mochary said. ... Mochary, who wouldn't go into the specific discussions he has had with clients, often dives deep into emotional discussions around fear, anger and shame, say CEOs who have worked with him. He also gives practical suggestions on handling employees and managing meetings, such as requiring biweekly written feedback between managers and their subordinates. And he has advised founders on how much stock it is appropriate to sell on the secondary market (Mochary recommends selling between $10 million and $100 million in order to achieve a "sense of abundance").
What do you make of the combination of "focus only on the tasks that bring them energy and that they love" with "requiring biweekly written feedback between managers and their subordinates"? Does that mean: - Many successful CEOs love giving and receiving biweekly written feedback, or
- CEOs can focus on doing what they love because they can make their subordinates do stuff they hate?
I can kind of see both possibilities? For me personally, nothing brings me less energy than giving or receiving frequent written feedback, but then I have never started a company. Also I am on Twitter all day so revealed preferences I guess. Also here is an amazing coaching move: In some more extreme cases, Mochary has replaced the CEO entirely for a short period of time. In 2017, long before financial software startup Bolt garnered a valuation of $4 billion, Mochary stepped in full time as CEO for over a month. The experience led to a complete "culture reset," said co-founder and CEO Ryan Breslow. The immersive method helped Breslow, only 23 at the time, learn what qualities are critical to being a good leader, he said. … "It could take an entire year for me to tell you what to do as CEO or I could come in and be CEO for a few weeks," Breslow recalled Mochary saying. "You can watch me and [you'll] learn 10 times faster."
What if he didn't let the guy come back? "It's my company now, I'm sorry, this is going to be a valuable learning experience for you at your next startup, bye." This is a good plot for a business novel. The obvious question for services like this is: How do you charge? There is a ton of potential leverage here; startups have highly variable outcomes, CEO performance is crucial to those outcomes, and making a CEO slightly better can potentially be worth hundreds of millions of dollars. And so traditionally startup founders get coaching from their venture capitalists, whose compensation comes in the form of owning shares (that they bought) in the company: If their advice and mentorship makes a founder better, then their shares will be worth a lot more. (Also if they develop a reputation for making founders better, they will get offered more and better deals.) If you unbundle coaching from capital, though, how should the coach charge? The obvious answer would be "stock options"[8] but that seems to be mostly wrong: Top coaches in the business today charge between $5,000 and $10,000 per month, according to people familiar with the industry. Mochary charges $12,500 a month for sessions, which he holds on Zoom on a monthly basis, if not more often. Until this year, Mochary would counsel executives at no charge, a choice he said he could make because the 2005 sale of his startup Totality had made him wealthy. The pro bono move bothered some other coaches, according to one who asked not to be named. Mochary would sometimes ask executives to instead donate equity to his foundation, or he would invest in their startup.
"He would invest in their startup" seems reasonable. "A flat monthly fee" is, you know, fine, but one worries about the alignment of incentives. "Free, I just love startups" is sort of the deep Silicon Valley answer: You do stuff to make the startup ecosystem better, which raises your status in that ecosystem, which will eventually turn out to make you rich even if the causal mechanism is initially unclear.[9] (It helps to be rich to begin with.) Let's say that you like the stock of AMC Entertainment Holdings Inc. and you want to buy, say, $1,000 worth of it. Let's say you don't have $1,000. How can you buy the stock anyway? A classic answer is "a margin loan": You go to your broker, put in $500, your broker lends you $500, and you buy $1,000 worth of stock. When you sell it, you have to pay your broker back, and you have to pay interest, but if it goes up you get basically all of the upside. What if you don't have $500? You might look into options. A call option to buy 100 shares of AMC stock (about $3,600 worth) for $60 a share next month currently goes for about $200.[10] If you buy that and AMC doubles to $72 next month, you will make $1,000.[11] That's roughly what you would have made buying $1,000 worth of stock. Of course if it goes up less you'll make less; if it goes up 50% you'll make nothing and lose your $200. This is not a perfect substitute for buying the stock. But it's something. It's a leveraged bet on the stock, a way to spend a relatively small amount of money to bet on a huge rally in AMC stock. What if you don't have $200? What if you have, say, zero dollars? Will anyone provide you with leverage where you put up nothing, they put up the money, you buy the AMC stock, if it goes up you collect the profits, and you never pay them back? When you put it like that the answer is no, obviously not, but it's worth a try? Here is an article from Bloomberg's Michael Regan about GoFundMe as a platform for financing AMC investments: "Hello fellow Apes!" reads one pitch from a trader who's so far only been able to buy a partial share. "I am here asking for help of any amount to buy AMC stonk! I work at my sad minimum wage job aka McDonald's and barely have one share of AMC. Money is tight, I survive off $1 menu and eat ramen. Hopefully I will have 1 share soon!" … Many simply implore potential donors to contribute to traders who want to buy and hold more AMC shares so they can worsen a short-squeeze among hedge funds betting against the stock. Details are scant on why exactly that would be a better strategy than the donors simply buying the shares themselves.
No, I'm kidding. While the GoFundMe pitches for, uh … margin donations? … are the most financially interesting ones — imagine starting a hedge fund funded by donations! — most of the pitches are actually to fund airplane banners: Airborne messages pumping shares of AMC Entertainment Holdings Inc. -- similar to the banner planes that alert parched Jersey Shore tourists to where they can find a $2 Corona Light -- have become a top tool of choice for the retail army that is marching in formation for this cult stock. Pilots don't come cheap, so the self-described "apes" of the AMC message boards are looking for handouts to help the effort: $4,250 for a flight over Canada; $550 to hoist "AMC TO THE MOON HODL" above North Carolina; $3,000 to fly a similar message above Wall Street; 5,000 pounds so that the British Parliament gets the word. And so on.
One thing that I have said about the meme-stock craze is that retail traders on Reddit have rapidly developed a very sophisticated collective understanding of how to move stock prices. There is a lot of crowdsourced knowledge about how to get the most bang for your buck, how to leverage a relatively small investment of your own money into large purchases by options market makers and squeezed short sellers to push the stock up. (Some of the meme-stock issuers, particularly AMC, have also learned to play this game, to do publicity stunts that move their stock prices up and allow them to raise cash.) From where I sit, spending a few thousand dollars to fly banners saying "AMC TO THE MOON HODL" over random beaches does not seem like a particularly cost-effective way to boost your portfolio; I would not expect that to drive the stock price up very much. But I am willing to believe that the AMC apes might have a better handle on this stuff than I do. Also though the point of investing in meme stocks is not just to make money, it is also to have fun and feel like part of a cultural phenomenon. I suppose the banners help with that. Also here's this: Brian Merli made a comment stating - "when amc hot $30 I'll eat a dog turd" Since then Brian has not came through with his promise. Apes you know what to do! Let's spread Brian's photo and quote on billboards all over St. Louis, Missouri! 5k is the target price but we are apes! Let's spread Brian's face across the country! Buy more AMC!
I don't see how that would help the stock price. It has raised $315. I dunno. JPMorgan to Double Advisers as Wall Street Vies for Wealthy. Fed Seen Speeding Taper of MBS in Early-2022 Start to Pullback. New Aid Planned for Mortgage Borrowers at Risk of Foreclosure. Banks Rethink Evergrande Mortgage Halt After Queries From HKMA. The Tyranny of Spreadsheets. 'I Feel Conflicted': Crypto's Offshore Trading Moguls Talk Shop. The Case for Stablecoins Being the New Shadow Banks. Croat Plan to Put Tesla on Euro Coins Reignites Balkan Feud. "David Johnston won't touch money, except to destroy it." Bear goes wild in Olympic stadium, is still on the loose. "You have to trust us. You have to. We are not joking and we are not having fun. So many things are wrong with this place." If you'd like to get Money Stuff in handy email form, right in your inbox, please subscribe at this link. Or you can subscribe to Money Stuff and other great Bloomberg newsletters here. Thanks! [1] We discussed it a few months ago, and I pointed out that investors didn't like the deal (when it was announced) as much as they had hoped to (before it was announced), but that is water under the bridge. They like it a lot more than they like $10, is the point. [2] Obviously if they think that Lucid is wildly overvalued and the stock is "really" only worth $5, they should sell the stock now, to someone who thinks it's worth more, for $22.90. There is no scenario where it is rational to hope the deal fails and then take your $10 back. This is a liquid stock trading in public markets; you can turn it into cash. Just take the $22.90 now. [3] I don't know why you'd vote no. Confusion or peevishness, I dunno. Or you sold the stock after the record date and want to be annoying. [4] Technically the merger required only a majority of the votes cast (assuming there was a quorum), but another proposal — to amend Churchill's corporate charter to stop being a SPAC and to allow the issuance of shares in the transaction — was a prerequisite to doing the merger and required a majority of the shares outstanding. See pages 14 and 176 of the proxy statement. [5] Bloomberg's HDS list, of shareholders big or institutional enough to disclose their holdings, covers 13.17% of the shares outstanding. At Apple Inc. that number is 60.84%. At Tesla Inc. it is 65.22%. At JPMorgan Chase & Co. it's 75.82%. [6] To be clear, the rules are more complicated, and people who are not accredited investors can definitely buy private stocks in various contexts. But there are limits on that, whereas basically anyone who's accredited can buy private stocks. [7] Or: Anyone who is accredited and wants to buy it can buy it, except for a list of excluded names that you provide to the exchange. If you're not a public company, there's no rule that everyone has to have equal access. [8] Or a percentage of the CEO's own compensation, like a talent agent. [9] This post from Alex Danco contrasting the Silicon Valley and Canadian tech scenes informs my thinking on this point. He writes: "Good Angels are playing an infinite game. They are contributing to a community; not in order to win something definite, but to earn the right to keep participating in the scene. They play the infinite game of growing their status within a growing community, which is a very good thing. And they often make a ton of money, leading to the perplexing advice for outsiders: 'the way to make money angel investing is to not set out trying to make money.'" [10] That is, a bit after 10 a.m. today, I see the $60 strike 20-Aug-21 call last traded at $1.99 on Bloomberg's OMON screen, with the stock in the high $35s. Options generally trade in contracts on 100 shares. [11] I mean, you'll pay $6,000 to exercise the option on 100 shares and sell them for $7,200, making $1,200, or $1,000 after deducting your $200 premium. | 
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