Nasdaq has just filed a proposal, Notice of Filing and Immediate Effectiveness of Proposed Rule Change to Amend Certain Procedures Related to the Suspension and Delisting of Acquisition Companies, designed to address the suspension and delisting process applicable to Acquisition Companies, companies such as SPACs with business plans to complete one or more acquisitions, as described in Rule IM-5101-2. The rule changes would apply to an Acquisition Company that “fails to (i) complete one or more business combinations satisfying the requirements set forth in Listing Rule IM-5101-2(b) (“Business Combination”) within 36 months of the effectiveness of its IPO registration statement; or (ii) meet the requirements for initial listing following the Business Combination.” The proposal would also “limit the Hearings Panels authority to review the Nasdaq Staff’s decision in these instances to a review for factual error only.” Nasdaq also proposes to clarify Listing Rule 5810(c)(1) (with no substantive change) to improve transparency and readability. The rule changes will be operative for Staff Delisting Determination letters issued on or after October 7, 2024.
Nasdaq permits the listing of an Acquisition Company only if it meets all applicable initial listing requirements along with the special requirements for Acquisition Companies (Listing Rule IM-5101-2), including the requirement that the company “must complete one or more business combinations having an aggregate fair market value of at least 80% of the value of the deposit account (excluding any deferred underwriters fees and taxes payable on the income earned on the deposit account) at the time of the agreement to enter into the initial combination, within 36 months of the effectiveness of its IPO registration statement, or such shorter period that the company specifies in its registration statement.” In addition, following the Business Combination, the company must meet the requirements for initial listing on Nasdaq. If these requirements are not met, Nasdaq will issue a Staff Delisting Determination under Listing Rule 5810 to delist the Acquisition Company’s securities. Under current rules, however, an Acquisition Company that fails to meet these two requirements may still “request a review of a Staff Delisting Determination and seek an exception to the requirements from the Hearings Panel, and could remain listed and trading on Nasdaq pursuant to an exception granted by the Panel” for a period of up to 180 days from the date of the determination.
Not anymore. Notwithstanding the general rule that would permit a stay in the event of a timely request for a hearing, Nasdaq proposes to amend Rule 5815 “to remove the stay provision in the situations described above so that an Acquisition Company’s securities will be suspended from trading on Nasdaq during the pendency of the Hearings Panel’s review.” Nasdaq states that this proposal is consistent with the rules of the NYSE.
In addition, Nasdaq staff have observed that, when Hearings Panels grant exceptions to Acquisition Companies in this context, Acquisition Companies can use the additional time provided by the exception “to regain compliance with the requirements by either completing a Business Acquisition (in the case of failing to complete a Business Acquisition) or by using the benefits of Nasdaq listing and trading to achieve compliance with the initial listing requirements it did not satisfy.”
Not anymore. Nasdaq believes that it would “enhance investor protection to instead provide that the Hearings Panel’s review of these issues is limited to the question of whether Nasdaq Staff made a factual error applying the applicable rule.” More specifically, Nasdaq is proposing to adopt a new Listing Rule 5815(c)(1)(H) providing that, when the Hearings Panel reviews a Staff Delisting Determination issued for failure to meet either of those two requirements, the Hearings Panel may reverse only where it “determines that the Staff Delisting Determination letter was in error and that the Acquisition Company never failed to satisfy the requirement. In such cases, the Hearings Panel may not consider facts indicating that the company had regained compliance since the Staff Delisting Determination nor may the Hearings Panel grant an exception allowing the company additional time to regain compliance.” In the event that the company subsequently completes a business combination or demonstrates compliance with all applicable initial listing requirements, however, “the combined Company could apply to list pursuant to the normal application review process.”
Finally, Nasdaq proposes to add to the list of deficiencies that immediately result in a Staff Delisting Determination in Rule 5810(c)(1) (with immediate suspension and delisting) the failure by an Acquisition Company to comply with one or more of the requirements set forth in Rule IM-5101-2, including the failure to complete the business combination on a timely basis or satisfy the initial listing requirements as described above. Nasdaq advises that Listing Rule IM-5101-2 already dictates this outcome, so the change is not really substantive, but provides additional transparency and improved readability.
