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Business Law Today

April 2022

April 2022 in Brief: Mergers & Acquisitions

Chauncey Lane and Yelena Dunaevsky

April 2022 in Brief: Mergers & Acquisitions

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SPAC Strikes Back

By Yelena Dunaevsky, Esq., Woodruff Sawyer

SPAC lawsuits of all kinds have been increasing in frequency and regularity over the last several months. From merger objection lawsuits to securities class actions to breach of fiduciary duties suits, the allegations and legal theories have been abundant. All these suits, interestingly, were brought against the SPAC or parties connected with a SPAC. Some of the suits ended up in lengthy court proceedings, and some went away quietly greased with a “mootness fee.” But now, it seems that at least one of the SPACs has had enough.

Dune Acquisition Corporation issued a press release on April 18, 2022, announcing that it filed a complaint in Delaware court against TradeZero Holding Corp. TradeZero happens to be Dune’s acquisition target; the parties entered into a merger agreement on January 26, 2022. According to a recently filed Form 8-K, the complaint alleges that TradeZero fraudulently induced Dune to enter into the merger agreement and that TradeZero has materially breached the merger agreement.

There are no details of how the alleged fraudulent inducement was achieved or of the alleged breach, so we can only speculate as to the nature of the financial information and projections that were provided. But in a surprising plot twist, the press release also states that despite the lawsuit, Dune is continuing to work with TradeZero under the terms of the merger agreement to complete the merger. If both the merger and the lawsuit are successful, the awkwardness between the officers of the SPAC and the target who will be steering the combined company post-merger will be cosmic.

But to put things in perspective, with its liquidation deadline of June 22, 2022, fast approaching, Dune may be running out of options, and desperation may not be the wrong word to use in this situation. If the merger with TradeZero falls through, Dune will likely need to liquidate and return funds to its investors. The lawsuit may simply be its way of hedging its bets.

Whether the investors will be well served by a merger where the SPAC is accusing its target of fraud is a thorny question. But judging by the fact that Dune’s share price is continuing to hold at close to $10 per share, the investors may agree with Dune’s hedging strategy.

With 600+ SPACs currently looking for targets and many getting close to their liquidation deadlines, we may very well see similar kinds of lawsuits brought by SPAC teams who don’t take kindly to being toyed with or led astray by their merger targets.