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Mosaic Files a New Proxy and Makes a Big Change


Mosaic Files a New Proxy and Makes a Big Change

Oct 29, 2019 INTEL by Kristi Marvin

Mosaic Acquisition Corp. (MOSC), the $345 million SPAC proposing to combine with Vivint Smart Home, Inc. (“Vivint”), filed a new preliminary proxy/S-4 today with an important change. Specifically, the previous Maximum Redemption Condition that no fewer than 10,350,000 shares redeem at closing can now be waived by Vivint. Per the proxy:

“Under the terms of the merger agreement, Vivint Smart Home may waive the Maximum Redemption Condition, such that closing of the merger could occur if Mosaic maintains at least $5,000,001 of net tangible assets (which is assumed to be a redemption of 34,000,000 shares, or 98.5% of Mosaic Class A common stock based, for ease of presentation, on an assumption that the sole assets of Mosaic are $345 million of cash in the Trust Account and disregarding the $1 difference in such a redemption scenario). In the event that Vivint Smart Home elects to waive the Maximum Redemption Condition, it will notify Vivint Smart Home’s and Mosaic’s stockholders by issuing a press release at least one business day prior to the closing of the merger.”

However, since this IS kind of a 180 degree flip on their previous term, let’s consider the alternatives as to why MOSC/Vivint is doing this:

One, an additional equity investment is forthcoming. At this transaction’s core, Vivint needs the cash to pay down their debt.  In fact, they even said as much in one of the main bullet points in their announcement press release. So, a scenario where Vivint completes the combination with $5 million left in trust, post-redemptions, seems an unlikely scenario for going public.  However, MOSC could be arranging an equity investment, a backstop, a PIPE, where even if there are significant redemptions, Vivint will have enough cash to be satisfied.  However, at what price?  Well, Blackstone and Fortress Investment Group (a subsidiary of SoftBank Group Corp.) are forward purchasers and PIPE investors already at $10.00.  So any additional investments will need to match that price.  However, a more likely scenario is that Blackstone and Fortress will invest additional funds, but maybe with some sweeteners to bring their cost basis down.

Two, Mosaic is hoping redemptions wind up somewhere close to the 70% threshold, and ideally, above it.  In this scenario, the waiver of the Maximum Redemption Condition is a big positive for Mosaic.  The threshold of 10,350,000 shares, while not totally insurmountable, was a little high for a SPAC.  And as evidence of even winning deals having to deal with redemptions, you can look no further than today’s filing by Virgin Galactic, which showed 12.1 million shares redeemed at their completion vote.  However, again, this waiver isn’t a guarantee this deal is a lock now. If too many shareholders redeem, Vivint may still decide to walk if they do not have enough cash for the transaction to make sense.  However, the 10,350,000 share barrier, which represents 70% of the public shares outstanding, is no longer a concrete barrier.  It’s more like a gate and Vivint has the key.

In any event, this is essentially a positive change for Mosaic. Mosaic/Vivint still needs to get out on the road to market this deal, but that 70% barrier is (for the most part) no longer a hard and fast issue.  There are still some question marks around it, but this version of the proxy is better than the previous iteration. Additionally, the place holder for a vote date is still blank, but does say, “[                    ], 2019“.  Emphasis on the 2019, not 2020.  So presumably, they’ll be hitting the road shortly.  Stay tuned for further developments.