(Reuters) – Daniel Loeb’s activist hedge fund Third Point LLC is in talks with investment banks about launching a “blank check” company that would raise money in an initial public offering to pursue an acquisition, according to people familiar with the matter.
The new investment vehicle, referred to on Wall Street as a special purpose acquisition company (SPAC), would be the first of its kind to be raised by an activist hedge fund such as Third Point, which acquires stakes in public companies to pressure them to pursue changes or seek board representation.
A SPAC uses proceeds from its IPO, together with borrowed funds, to acquire companies that are usually privately held. Investors in the IPO do not know in advance which company a SPAC will buy, although many outline in advance the sectors they want to be active in. It is not clear what kind of companies Third Point’s SPAC would target.
Third Point is in talks with investment banks about arranging the SPAC’s IPO later this year, which could raise hundreds of millions of dollars, the sources said, asking not to be identified because the deliberations are confidential.
New York-based Third Point declined to comment.
The SPAC is an attempt by Third Point to diversify its revenue stream, as returns from its flagship hedge fund, which has returned 15.6 percent on average over its lifespan, have flattened this year amid jitters in the stock market.
Founded by Loeb in 1995, Third Point has close to $18 billion in assets under management. Its investments have included Netflix Inc, Nestle SA, Sony Corp and Yahoo Inc.
Before sponsoring its own SPAC, Third Point invested in Nomad Foods Limited, a SPAC launched by consumer industry veterans Martin Franklin and Noam Gottesman in 2014. William Ackman’s activist hedge fund Pershing Square Capital Management LP also invested in Nomad Foods.
Typically, SPACs allow investors to redeem their common stock at the IPO price if they disagree with a proposed acquisition. This has traditionally put off long-term institutional investors but made them popular with hedge funds, willing to take a bet on what a SPAC’s deal could be.
To address this, some SPACs now seek to launch with the backing of cornerstone investors who have committed not to redeem their money if they disapprove of a proposed acquisition, giving the SPAC more financing certainty to be able to go after the companies it wants.
Reporting by Joshua Franklin in New York and Svea Herbst-Bayliss in Boston; Editing by Leslie Adler