Redeeming a SPAC for cash

and why retail got it really wrong with CCXX.

One of the great things about SPACs is the ability to redeem common shares for cash right before a merger as a failsafe. But retail traders don’t really understand how it works. Retail traders lost hundreds of thousands on CCXX because they didn’t understand how it worked.

How to redeem for cash:

1. You should get a notice from your broker

2. The tender offer gives you an estimated price to change your shares for cash. For CCXX the estimate was $10.04 per share. (Actual payout was $10.028/share)

3. To accept it, call your broker and let them know you want to accept the offer.

4. ONLY accept the offer if the common share price is below the tender price Otherwise you should sell in the market

5. Redeem the offer at the latest time possible, in-case the market price rises above the offering.

6. For Units, you should split them early since it may take a couple of days to split, or just sell in the open market.

What happens after:

1. Your account will have the CCXX shares removed, and a tender security in it’s place. (This might take a day of lag to update)

2. Cash will be deposited 2-3 business days after the merger vote!

My experience

1. 10/5 9AM EST: I called Fidelity to accept the tender, and they accepted it

2. 10/6 Replaced my CCXX common with a tender security

3. 10/9 Funds deposited in my account (At $10.028 per share)

So why did retail trader lose thousands? They got the last day of accepting the offer wrong.

What happened?

1. A lot of retail investors thought the last day to redeem their common shares for cash was 10/2, the cutoff date.

2. The actual last day was the expiration date, on 10/5 11AM EST. On the last day of the offer, while the offer was still valid, the stock sold off to as low as ~$9.00, way below the redemption amount $10.02. Retail traders were panic selling their shares and losing hundreds of thousands when they could have just redeemed them for $10.02

3. The confusion was because many alerts only mentioned the cutoff date. But not the “expiration date”. The actual last day to redeem was 10/05 11AM ET, not 10/02. I called Fidelity to redeem when CCXX was at $~9 on 10/05!

   

4. This is also potentially a huge arbitrage opportunity because there is no record date.

5. What’s the difference between ‘cutoff date’ and ‘expiration date’?

   Technically the cutoff date is the last date your broker can guarantee your instruction is accepted. However you can submit anytime before the expiration. I called fidelity after the cut-off, and they said the only reason it wouldn’t be accepted is if there was a “power outage” at the broker’s office.

   

   So there you have it! Hopefully this gives you more clarity in how to redeem your shares for cash, and some of the nuances to help you maximize your efforts.

   If this helped you, please share with other and follow me.

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