Muddy Waters’s Carson Block said SPACs largely make up the universe of companies he views as both ‘abysmal’ and less burdened by technical challenges.
PHOTO: ANTHONY KWAN/BLOOMBERG NEWS
By Matt Wirz and Juliet Chung from WSJ
Short sellers are coming for SPACs.
Investors who bet against stocks are targeting special-purpose acquisition companies, one of the hottest growth areas on Wall Street. The dollar value of bearish bets against shares of SPACs has more than tripled to about $2.7 billion from $724 million at the start of the year, according to data from S3 Partners.
Some of the stocks under attack belong to large SPACs that surged in recent months, in part because they were backed by high-profile financiers. A blank-check company created by venture capitalist Chamath Palihapitiya that plans to merge with lending startup Social Finance Inc. is a popular target, with 19% of its shares outstanding sold short, according to data from S&P Global Market Intelligence. The short interest in Churchill Capital Corp. IV, a SPAC created by former investment banker Michael Klein that is merging with electric-vehicle startup Lucid, more than doubled in March to about 5%.
Others are wagering against companies after they combine with SPACs. Muddy Waters Capital LLC announced last week it was betting against XL Fleet Corp., a fleet electrification company that went public in December after merging with a SPAC. XL has since said Muddy Waters’s report, which alleged XL inflated its sales pipeline and made misleading claims about its technology among other issues, had "numerous inaccuracies."
"SPACs are an area of focus," said Muddy Waters’s Carson Block. The veteran short-seller said SPACs largely make up the universe of companies he views as both "abysmal" and relatively free from technical challenges, such as high short interest, which can make betting against them difficult.
Source: S3 Partners
Source: S3 PartnersKerrisdale Capital founder Sahm Adrangi started shorting postmerger SPAC companies earlier than most, with a public bet in November against the stock of frozen-food maker Tattooed Chef Inc., which still trades above its price at that time. But the stock has fallen about 13% during the recent market slump.
"We saw these stocks go up a lot and now that people are de-risking, these highflying SPACs are coming down to earth," Mr. Adrangi said.
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