CLOVER HEALTH INVESTMENTS, CORP. current report, 05 October 2020

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Business Context and Reporting Period

This Form 8-K, filed October 6, 2020, reports that Social Capital Hedosophia Holdings Corp. III (“SCH”), a Cayman Islands blank-check company, entered into a merger agreement with Clover Health Investments, Corp. (“Clover”) and Asclepius Merger Sub Inc. on October 5, 2020. The transaction is a proposed business combination; it is not a report of Clover’s operating results for a fiscal period.

Transaction Terms and Key Financial Metrics

  • Merger consideration will consist of up to $500 million in cash, reduced by redemptions of SCH public shares, plus SCH Class B common stock valued at the difference between $3.5 billion and the cash consideration, divided by $10 per share.
  • SCH will raise $400 million through a private investment in public equity (“PIPE”) involving 40 million shares at $10 per share. The PIPE is expected to close substantially concurrently with the merger.
  • Clover stockholders will generally be entitled to elect cash, shares, or a combination, subject to the merger agreement. Certain holders will receive only Class B common stock with 10 votes per share.
  • The transaction requires minimum cash resources, including the post-redemption Trust Amount and PIPE proceeds, of at least $700 million, with a mutual minimum of $300 million from the Trust Amount plus non-insider PIPE proceeds.
  • SCH must have at least $5,000,001 of net tangible assets at closing.
  • The filing does not provide Clover revenue, profit, cash flow, margins, debt, liquidity, or other operating-period financial metrics.

Material Changes Versus the Prior Comparable Period

The filing does not present comparative financial statements or period-over-period operating changes. The material development is the execution of the proposed merger, related PIPE financing, domestication of SCH from the Cayman Islands to Delaware, and planned renaming of SCH to Clover Health Investments, Corp.

Guidance, Outlook, Risks, Contingencies, and Unusual Items

  • Closing is subject to shareholder approvals, effectiveness of an SEC Form S-4 registration statement and proxy statement, antitrust and other regulatory approvals, exchange-listing approval, completion of Clover’s pre-closing restructuring, absence of a material adverse effect on Clover, and other customary conditions.
  • The transaction may be terminated in specified circumstances, including failure to obtain required approvals, uncured breaches, certain legal prohibitions, or failure to close by February 10, 2021.
  • SCH will domesticate into Delaware. Existing SCH Class A and Class B ordinary shares will convert into Class A common stock, and warrants will convert into warrants for Class A common stock.
  • SCH’s sponsor and directors agreed to support the transaction. Clover key stockholders holding at least a majority of the voting power of Clover common stock and each preferred-stock series agreed to support approval and the pre-closing restructuring.
  • Post-closing transfer restrictions generally apply for up to 180 days, with certain lock-up releases tied to stock-price thresholds of $12.50 and $15.00.
  • PIPE shares will be issued in an unregistered offering under Section 4(a)(2) of the Securities Act. Resale registration rights will apply to non-insider PIPE investors.
  • Principal risks include failure to complete the transaction or PIPE financing, insufficient funds after shareholder redemptions, failure to obtain approvals or maintain exchange listing, legal proceedings, transaction-related business disruption, employee-retention challenges, healthcare regulation, competition, market volatility, and execution of post-closing plans.

Important Facts for Investors to Verify

  1. Review the definitive merger agreement and subsequent Form S-4/proxy statement for the final consideration mechanics, shareholder voting requirements, redemption effects, and closing conditions.
  2. Verify the amount remaining in SCH’s Trust Account, expected redemptions, PIPE funding, and whether the $700 million and $300 million minimum funding conditions are satisfied.
  3. Review Clover’s audited and unaudited financial statements when filed, including revenue, losses, cash flow, debt, liquidity, medical-cost trends, and margins.
  4. Confirm completion of the domestication, pre-closing restructuring, regulatory approvals, exchange listing, and the final closing date.
  5. Assess dilution, voting control, sponsor-related participation, lock-up terms, registration rights, and the impact of the 10-vote-per-share Class B stock.
  6. Do not rely on the filing’s forward-looking statements or investor presentations as guarantees of Clover’s future performance.