Since we’re talking about SPACs again, I am reminding you that nothing you read here is financial advice.
I’m slightly long XPOA/QBTS.
Per their announcement on Friday August 05, 2022, the shareholders officially voted to go through with the merger and the ticker symbol XPOA 0.00%↑ will become QBTS 0.00%↑ , officially turning D-Wave Systems into a public company.
The details of the relevant 8-K filing tell us that the merger is official, and show the vote breakdowns. The last sentence also tells us the apparent bottom line:
Stockholders holding 29,097,787 shares of Class A Common Stock exercised their right to redeem such shares for a pro rata portion of the funds in the Company’s Trust Account. As a result, $291,365,553.22 (approximately $10.01 per share) will be removed from the Company’s Trust Account to pay such stockholders.
This basically means that the company raised $300M - $291M in addition to the guaranteed PIPE money ($40M), which sums to a dismal $49M before transaction fees. If you recall from my post on the D-Wave SPAC announcement, they project net losses between $60M - $80M per year for the next three years until they are suddenly profitable by the end of 2025.
If all you knew was this information, D-Wave seems, to put it mildly, totally fucked. They essentially made less than a year’s worth of operating costs and that’s before the SPAC transaction fees are included.
Fortunately for D-Wave (and quantum computing), the reality is more hopeful.
If you were paying attention, reading the S-4s like a well informed investor1, on May 27, 2022 you would have learned that UBS, Morgan Stanley, and Citi ‘quit the SPAC’, so to speak.
Each of Morgan Stanley, Citi and UBS has resigned from its advisory role in connection with the Transaction, and investors should not put any reliance on the fact that Morgan Stanley, Citi or UBS were involved with any aspect of the Transaction.
On May 13, 2022, each of Morgan Stanley and Citi resigned from its role as financial advisor to D-Wave and capital markets advisor to DPCM, respectively, and from its role as co-placement agent for a portion of the PIPE Financing. On May 20, 2022, UBS resigned from its role as capital markets advisor to DPCM. None of Morgan Stanley, Citi or UBS provided a reason for its resignation. None of Morgan Stanley, Citi or UBS communicated to D-Wave or DPCM, and neither D-Wave nor DPCM are aware, that the resignations were the result of any dispute or disagreement with D-Wave or DPCM or any matter relating to D-Wave’s or DPCM’s operations, prospects, policies, procedures or practices. In connection with their resignations, each of Morgan Stanley and Citi waived any claim it may have to any fees under its respective engagement letter with D-Wave and DPCM and, accordingly, neither D-Wave nor DPCM has paid to either of Morgan Stanley or Citi, and is not liable for, any fees. The aggregate fees that had been payable to such firms prior to their respective resignations totaled approximately $22 million. In connection with its resignation, UBS has not waived its claim to fees payable in connection with the DPCM IPO, as described elsewhere in this proxy statement/prospectus.
As is customary, certain provisions of D-Wave and DPCM’s respective agreements with Morgan Stanley, Citi and UBS survived such firms’ resignations. These provisions include D-Wave and DPCM’s respective obligations to indemnify such firms from and against any losses and claims arising out of, or in connection with, the services provided under their respective agreements.
Each of Morgan Stanley, Citi and UBS declined to review the disclosure in this proxy statement/prospectus pertaining to its resignation, and there can be no assurance that any of Morgan Stanley, Citi or UBS agrees with this disclosure and no inference should be drawn to such effect. Investors should not put any reliance on the fact that Morgan Stanley, Citi or UBS were involved with any aspect of the Transaction.
Yes, you read that correctly. Three banks decided to spontaneously stop having anything to do with this transaction and waived millions of dollars in fees2 in the middle of may. According the filings, no additional information was provided.
My best guesses for the proximal cause(s) of this unusual bank behavior3 are that
Equity markets hit a local minimum around May 12, 2022. On that date the S&P index closed at $3930.08, down 18% from the January highs.
Similar companies (IonQ and Rigetti) were down between 50% - 75% from their January highs.
On March 30, 2022, the SEC proposed new regulations governing SPAC transactions, bringing them more into line with regulations governing traditional IPOs.
From the perspective of someone who doesn’t know anything, these seem like decent enough reasons to jump ship?
EDIT: Point 3 seems to be the most salient, based on this reddit post about the new SEC regulations. It appears that the banks involved in any SPAC transaction would be liable for misstatements or omissions in the S-44.
Hope is not lost though! On June 24, 2022 our well-informed investors will have learned that:
On June 16, 2022, D-Wave Quantum, D-Wave and DPCM entered into the Purchase Agreement with Lincoln Park pursuant to which Lincoln Park has agreed to purchase from D-Wave Quantum, at the option of D-Wave Quantum, up to $150,000,000 of D-Wave Quantum Common Shares from time to time over a 36-month period following the Commencement Date (as defined below).
[…]
Following (i) the Closing and (ii) upon the satisfaction of certain other conditions set forth in the Purchase Agreement (the “Commencement Date”), D-Wave Quantum will have the right, but not the obligation, from time to time to direct Lincoln Park to purchase D-Wave Quantum Common Shares having a value of up to $250,000 on any business day (the “Purchase Date”), which may be increased to up to $1,000,000 depending on certain conditions as set forth in the Purchase Agreement (and subject to adjustment for any reorganization, recapitalization, non-cash dividend, stock split, reverse stock split or other similar transaction as provided in the Purchase Agreement) (each, a “Regular Purchase”).
[…]
From and after the Commencement Date, D-Wave Quantum will also have the right, but not the obligation, to direct Lincoln Park on each Purchase Date to make “accelerated purchases” on the following business day (the “Accelerated Purchase Date”) up to the lesser of (i) 300% of the number of shares purchased pursuant to a Regular Purchase or (ii) 30% of the trading volume on such Accelerated Purchase Date (during a time period specified in the Purchase Agreement) at a purchase price equal to the lesser of 95% of (x) the closing sale price of D-Wave Quantum Common Shares on the Accelerated Purchase Date and (y) of the volume weighted average price of D-Wave Quantum Common Shares on the Accelerated Purchase Date (during a time period specified in the Purchase Agreement) (each, an “Accelerated Purchase”). D-Wave Quantum will also have the right in its sole discretion to set a minimum price threshold for each Accelerated Purchase in the notice provided with respect to such Accelerated Purchase and D-Wave Quantum may direct multiple Accelerated Purchases in a day provided that delivery of D-Wave Quantum Common Shares has been completed with respect to any prior Regular and Accelerated Purchases.
Yes, that’s right, D-Wave has concluded an agreement with Lincoln Park Capital to receive another $150M of funding over the next three years, subject to some constraints listed in the S-4. Additionally, they have the right to direct Lincoln Park to buy between $250,000 and $1,000,000 shares on any business day.
In essence, D-Wave has secured another 3-ish years of operating capital from LPC, in addition to whatever they pull in from the SPAC itself, which we now know to be another $49M. In addition, the terms of this particular deal provide some downside protection to the stock price, as long as the volume stays low5. That might be enough to keep them in a better place than where IonQ and Rigetti shares ended up (trading down ~50%).
TL;DR
Without all of the context, D-Wave’s SPAC raising $49M with a huge fraction of redemptions seems to doom them to less than a year of continued operations. However, looking more closely, we find that they’ve actually secured another $150M in funding over the next three years, with some interesting additional provisions that might(?) help them defend their stock price. Well-played.
I was not.
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Is it actually unusual? I have no idea.
Huge thanks to Max Radin for finding this info and the tidbit about the banks quitting the SPAC. Without him this post would never have been written.
I’m not sure how much this will do. It seems weird to tell adversaries exactly how much you’re willing to spend to prevent your stock price from dipping below NAV or some other set-point. On the other hand, I believe there are additional provisions to exceed the limits noted here.
I am extremely skeptical about Canadian led Quantum computing startups. Xanadu and especially D-Wave have a track record of making a lot of promises. I looked into D-Wave's business model and it should not have even been allowed to go SPAC. I am a bit surprised you are long.