Dune’s Board (DUNE) Recommends Shareholders Vote Against TradeZero Combination

Dune (NASDAQ:DUNE) this morning took the highly unusual step of urging its shareholders to vote against its pending business combination with TradeZero when they assemble for a special meeting to approve or deny its combination.

It nonetheless is continuing to work to finalize its proxy statement and is also proceeding with a lawsuit against TradeZero that it announced it filed in Delaware court last month. When the suit was announced, we walked through the options for Dune with its transaction deadline coming up on June 22, 2022.

Essentially: 1.) Terminate the transaction, extend the deadline and find a new deal. 2.) Terminate and liquidate. 3.) Put it to a vote and either close or liquidate with a “no” vote.

Part of that path has been answered now, which suggests that some conditions exist that prevent Dune from simply terminating the deal. And, while this situation is very unusual, it is not completely unprecedented.

In fact, just back in May 2020, Far Point Acquisition Corp. recommended its shareholders vote against its combination with Global Blue. This was at the height of the pandemic shutdowns and Global Blue’s business was heavily reliant on international travel, so the move was understandable given the cloud of uncertainty at the time. But, Far Point was similarly up against its transaction deadline and other complications forced the tale to go down several more twists and turns.

Third Point, an affiliate of Far Point’s sponsor, had backstopped up to $430 million of its potential redemptions via a forward purchase agreement and also joined the deal’s $350 million PIPE. As such, its wagon was firmly hitched to a deal with a travel company when both travel and the market were in free fall.

To make things even more interesting, Global Blue’s largest shareholder, Globetrotter, bought up a significant stake of public Far Point shares in an effort to push the vote towards “yes.” A few more broadsides of public statements later, and the two sides came to a compromise on deal terms and the deal was approved in August of that year with 77% of shares redeemed.

Dune is at least less financially tied to the transaction, which does not have a PIPE, and it is yet to be seen if another party may enter the fray like Globetrotter in favor of closing the deal (i.e., buying the vote). However, ironically, under both SPAC rules and the merger’s terms, Dune’s sponsor must vote its shares (promote) in favor of the transaction, regardless of whether it wants to or not. So already, there is at least 20% of shares accounted for in the “yes” column.

Furthermore, Dune can’t simply buy the vote either since any shares it purchases are obligated to voted “yes” as well. However, similar to Global Blue, there is nothing stopping a TradeZero shareholder from accumulating a large enough position to affect the vote.

Be that as it may, TradeZero evidently wants the deal to go through and it may be less turned off by the prospect of high redemptions driven by the drama now that high redemptions are an unfortunately common feature of closings in the current SPAC market. However, the transaction does include an $80 million minimum cash condition and there is a strong possibility that shareholders will redeem enough to broach that threshold. However, again, this could be mitigated by a shareholder “buying the vote” and…enough shares to guarantee the minimum cash closing.

Nonetheless, there is still the possibility that the two sides come together on changes to the business combination agreement as happened with Far Point and Global Blue. Dune announced a tweak to the agreement concerning earn-out shares in January, so the two sides were still talking at least then.

But, there is still the matter of the lawsuit, alleging TradeZero caused Dune “irreparable injury” by “fraudulently inducing” it into the transaction, which TradeZero had since “materially breached”. Those are not the sorts of words that generally precede a swift mending of fences, but there’s no plot twist you can’t rule out in SPACland.