In re Multiplan Corp Stockholders Litigation

In recent years, the Special Purpose Acquisition Company (or "SPAC") has garnered lots of headlines. The SPAC transaction provides a private company a back-door route to a public listing, avoiding an onerous and usally expensive initial public offering process. Though SPACs have become quite popular in recent years, they are subject to a good deal of criticism. One area of criticism relates to the incentives faced by insiders (or sponsors) who put SPAC deals together. Due to securities rules specific to SPACs, when they go public, SPAC sponsors must complete a merger with a private company within two years or face the prospect of returning capital it investors. Since SPAC sponsors receive their shares at highly discounted prices relative to public investors, a deal that is "value reducing" to public shareholders might well have a positive present value for sponsors. In Multiplan, plaintiffs point to the mismatch in incentives as ask the court to apply the entire fairness standard to its review of director actions in this case.