Ever fancy owning your own spaceship? Well, you should soon be able to buy shares in one, if Richard Branson succeeds in getting his Virgin Galactic IPO off the launchpad.
Branson’s space-tourism venture plans to go public as part of a deal with a special purpose acquisition company (SPAC) created by Social Capital LP Chief Executive Officer Chamath Palihapitiya, a person familiar with the matter told Reuters news agency.
The deal was earlier reported by the Wall Street Journal, which said the SPAC – Social Capital Hedosophia Holdings Corp – would invest about $800m in exchange for a 49 percent stake in Virgin Galactic.
“It’s like doing private equity in reverse – you get a public listing first, then find private investors to back into it,” Professor Tim Jenkinson of Oxford University’s Said Business School told Al Jazeera.
“SPACs are a sign of a booming market. They’ve been called ‘blank cheque’ companies. They raise a pool of capital, in this case $800 million, then go out and find a company to invest in.”
Hedosophia will take nearly half of Virgin Galactic, and the SPAC’s promoters will take a cut of a fifth of that. In other words, they’ll get a 10 percent stake in the space company for themselves.
“For them, it’s an interesting deal, as long as they’ve got it at a good price,” said Jenkinson.
What happens to the SPAC share price following an initial investment announcement is key. Many investors in these sorts of companies are hedge funds, which see them as a safe bet, Jenkinson added. They can park their money in them, and sell their shares on the announcement if they don’t like the proposal.
“History tells you that when the market stays flat, it’s not a good deal,” said Jenkinson.
Hedosophia shares (NYSE: IOPA) had been steady at around $10.40 for the past week, but briefly spiked to $10.93 as trading opened on Tuesday. By 14:00ET, they had dropped again to $10.58 per share.
“This is not a ringing endorsement, suggesting the market is a bit sceptical,” said Jenkinson.
“But on the other hand, it is at least up. It’s a modest endorsement of the deal as it’s being presented to the SPAC investors.”
Branson’s company is racing against Blue Origin, the space business of Amazon founder Jeff Bezos, to bring tourists to space.
Virgin Galactic soared to the edge of space in February with a test passenger for the first time, nudging the company closer to its goal of suborbital flights for space tourists.
After Branson founded the company in 2004, his ambitious timeline for taking customers into space suffered delays and a fatal setback when the original SpaceShipTwo crashed on a test flight in 2014 that killed the copilot and seriously injured the pilot.
Branson has said he plans to be the first passenger on SpaceShipTwo’s first commercial flight in mid-2019.