As explained in the complaint that was filed in the Delaware Court of Chancery with the help of plaintiff counsel Dylan Newman, the Super Group shareholder considers that the architects of Sports Entertainment Acquisition Corp. (SEAC) were responsible for pushing through the merger valued at $4.75 billion while intentionally withholding specific disclosures.
Eric Grubman, Chris Shumway, and John Collins are sued for allegedly structuring the blank-check company in a way that was going to directly benefit them from a bad deal while triggering a decrease in the price of shares after the merger.
The Defendants Received 11.25M Shares Valued at 0.0023 Cents Per Share
Prior to the SEAC’s first public offering, the three defendants were handed 11.25 million common equity shares valued at $25,000, representing a cost of 0.0023 cents per share.
As per the terms of the initial public offering of the special purpose acquisition company, the same defendants along with another investor who has not been identified further sold the shares for $1 per piece.
At the same time, the four also waived the redemption rights for the shares of the founder, which made it critical for the SPAC to complete a merger with a partner to prevent the shares from expiring worthless, as explained by the plaintiff’s counsel.
According to the same filing, the defendants were aware of the fact that any deal, including a bad one that would make SEAC’s stock price go below the price of $10 per share would have been a better deal for them than the absence of any deal.
The defendants also knew that they would be able to maximize the Trust funds needed to consummate the merger by limiting the number of redemptions. The latter would have also depleted cash from the same Trust.
While the standard timeframe for SPACs to come across a merger partner after the initial process offering is usually set to two years, provided this fails to happen, the shell company is liquidated and the cash goes back to the shareholders, potentially leaving founders without no profits.
As argued in the complaint, the majority of SPAC founders would be highly motivated to see these types of deals brought over the two-year deadline.
Counsel Newman argued that “These incentives drove Defendants to encourage public Class A stockholders not to exercise their redemption rights” while also encouraging them to vote in favor of the merger since they could still redeem their shares and keep an eye on their economic interests.
In mid-March, Super Group published its preliminary results for the fourth quarter and for the fiscal year 2022, expressing optimism regarding the future in spite of records showing a small year-on-year decline across several financial metrics.
SEAC Share Price Considerations, Allegedly Exaggerated
While the statement spoke about the value of the shares at $10 per piece, the plaintiffs’ legal team argued that because of cash declines and dilution, the actual value of the shares was realistically closer to $6.72 per piece.
Plus, the defendants were allegedly aware of the upcoming “substantial redemptions,” that would cut the per share cash contribution, as it was further added in the same filing.
The plaintiffs’ counsel has argued that the Delaware Court of Chancery should award damages that should show the difference between the value that stockholders would have been entitled to get if they had redeemed the shares before the merger and the genuine value of the shares that they received as a result of the merger being completed.
At the beginning of the year, Super Group Limited announced an expansion of its presence in the US by acquiring Digital Gaming Corporation.
