Nasdaq re-introduces rules on listing of SPACs on Nasdaq Copenhagen

Nasdaq's rulebook has previously contained rules regarding the admission to listing of SPACs, though these rules were omitted with the entering into force of the Nasdaq Nordic Main Market Rulebook of May 2020. However, following the strong market interest for the listing of SPACs in particular in the US, but also in other European markets, Nasdaq has now once again opened for the possibility for SPACs to be listed on its Nordic exchanges in Denmark, Finland and Iceland, with the rules having applied in Sweden since 1 February 2021. 

What is a SPAC?

"SPACs" being described in the Nasdaq rulebook as a listed entity "whose purpose is to complete one or more acquisitions within a certain time period" are essentially shell companies with no commercial operations. The purpose of a SPAC is to raise funds through an IPO to acquire one or several target company(ies) within a certain period of time. The acquired companies will then through a business combination with the SPAC become traded on the exchange via the SPAC. For this reason, SPACs are also referred to as "blank check" companies, as the investors does not know the eventual target company(ies) at the time of the IPO. 

In an ordinary IPO, the IPO investors will normally base their investment on the description of the company offering shares in the IPO prospectus. However, as SPAC IPO investors are essentially purchasing shares in a shell company, their investments will not be based on the assets, operations or financial history of the offering company, i.e. the SPAC. On the contrary, the investment of SPAC investors will be based on the background of the institutional investors of the SPAC, who may be in private equity funds and hedge funds or high-profile company executives. These are also referred to as the "SPAC sponsors" and are the people responsible for finding suitable target company(ies) to be merged with the SPAC. 

The twofold listing process

The new rules introduce a twofold listing process consisting of an initial listing of the SPAC and a subsequent listing of the combined business following the business combination of the SPAC and the target company(ies).

For the initial listing process, the SPAC will be listed on a separate SPAC segment but must comply with the ordinary admission requirements for listing on Nasdaq Copenhagen with the exception of the rules on historical financial information and business operations. Therefore, this process is similar to an ordinary IPO process. Nasdaq expects that the SPAC prospectus include certain information specific to the SPAC such as:

• The objective, timeline and purpose of the SPAC;
• The redemption process and terms; and
• Information on the SPAC sponsor, including the sponsor's strategy and the sponsor's reasoning behind sponsoring the SPAC.

The subsequent admission process of the business combination must comply with all normal admission requirements for listing on Nasdaq Copenhagen Main Market or Nasdaq Copenhagen First North Growth Market, depending on which market the business combination is applying for admission on. This includes the rules on historical financial information and business operations which were excepted for the initial admission of the SPAC. All requirements for admission must be satisfied no later than at the closing of the business combination transaction. When all the requirements are met, the shares of the combined business will be moved from the SPAC trading segment to the normal trading segment. 

As the SPAC is already admitted to trading and official listing at the time of the subsequent listing of the business combination, the drawing up of a prospectus for the business combination will only be necessary if required by the EU Prospectus Regulation. If the Prospectus Regulation does not require the publication of a prospectus for the subsequent listing, an information memorandum must be published instead with sufficient information in order to enable the SPAC's shareholders to make an informed decision on the business combination. 

When listing the business combination, it is possible to choose whether to apply for admission on the Nasdaq Main Market or Nasdaq First North Growth Market.

Requirements for listings of SPACs

When the IPO is completed, at least 90 percent of the gross proceeds from the IPO and any other sale of securities must be deposited in a blocked bank account (a "deposit account").

Following the date of admission to trading, the SPAC must have completed one or more business combination(s) within 36 months. The SPAC may choose a shorter period of time, which must be disclosed in the SPAC prospectus.

The business combination(s) must have an aggregate fair market value of at least 80 percent of the value of the deposit account at the time of the agreement to enter into the initial combination. Until the satisfaction of this requirement, the SPAC must comply with the following:

• Each business combination must be approved by (i) a majority of the directors who are independent of the SPAC and the SPAC's management as well as (ii) the majority of the shares voting at the general meeting of shareholders at which the business combination is being considered.
• The SPAC must notify Nasdaq of any proposed business combination as soon as possible and prior to the disclosure of the business combination to the public.
• The SPAC's articles of association must provide shareholder with the opportunity to redeem their shares into cash equal to their pro rata shares of the aggregate amount then in the deposit account. See more below.

The right to redeem shares

As stated above, the SPAC must, until the satisfaction of the 80 percent requirement, include in its articles of association a right for the shareholders to redeem their shares. The right for the shareholders to redeem their shares only applies provided the business combination is approved and consummated in accordance with Danish national law.

However, the right to redeem shares does not apply to all shareholders. Certain shareholders must be excluded from the right to redeem shares. These are stated in the Nasdaq rulebook and include: 

• Members of the board of directors of the SPAC;
• The management of the SPAC; and
• Founding shareholders of the SPAC.

Further, the SPAC may choose to establish a limit with respect to which shareholder may exercise their redemption right. However, this limit can be set to no lower than 10 percent of the SPAC's total share capital, meaning that the SPAC may set a limit that a maximum of 10 percent (or other thresholds as applied by the SPAC) of the SPAC's share capital can be redeemed in total. Therefore, there is a risk that shareholders applying for redemption of shares may be unable to redeem all their shares if the total shareholding represented by all shareholders applying for redemption exceeds the applied shareholding threshold of the SPAC's share capital. It is up to the individual SPAC to decide on how to comply with the principle of equal treatment of shareholder. 

In addition, the right to redeem shares must be outlined in the notice to convene the general meeting. 

The above requirements will in practice require a balancing of what is required by Nasdaq Copenhagen, and what will be permissible under Danish company law.

Trading in SPAC shares

The SPAC shares will be traded on a new special SPAC trading segment and will be moved to the normal trading segment when the admission requirements for the business combination has been met. From the announcement of the business combination until the approval for admission to trading of the business combination, the SPAC's shares will be marked with observation status. Therefore, investors will be notified when a new admission process is underway. 

The new SPAC admission requirements are stated in section 2.18 of the Nasdaq Nordic Main Market Rulebook for Issuers of Shares and will enter into force for Nasdaq Copenhagen A/S as of 12 April 2021. 

The revised rulebook as well as an Q&A on the new SPAC rules can be found on Nasdaq's website