Local Bounti Corporation—Form 8-K Summary
Filing date: November 5, 2021; earliest event November 4, 2021. The registrant was Leo Holdings III Corp., a special purpose acquisition company proposing to combine with Local Bounti Corporation, a controlled-environment agriculture producer of lettuce and herbs. The filing supplements the definitive joint proxy statement/prospectus ahead of shareholder and warrant-holder meetings scheduled for November 16, 2021.
Business Context and Transaction
- Local Bounti uses its patent-pending Stack & Flow Technology to grow produce using substantially less water and land than conventional agriculture.
- The proposed transaction includes Leo’s domestication as a Delaware corporation, followed by mergers that would make Local Bounti a wholly owned subsidiary of the combined company, expected to be named Local Bounti Corporation.
- The transaction is expected to be accounted for as a reverse recapitalization, with Local Bounti as the accounting acquirer and no goodwill or other intangible assets recorded.
- Closing remains subject to shareholder approvals, customary conditions, and minimum cash and net tangible asset requirements.
Financing, Capitalization, and Liquidity
| Item | Reported amount or assumption |
|---|---|
| Additional PIPE shares | 2.5 million shares at $10.00 per share |
| Total PIPE financing | 15.0 million shares and $150.0 million gross proceeds, increased from 12.5 million shares and $125.0 million |
| Minimum cash closing condition | $150.0 million available at closing, subject to waiver by Local Bounti |
| Leo trust account | Approximately $275.0 million as of June 30, 2021 |
| Maximum modeled redemptions | 27.5 million shares, or approximately $275.0 million |
| Pro forma cash | $363.8 million assuming no redemptions; $100.0 million assuming maximum redemptions |
| Pro forma total assets | $385.1 million assuming no redemptions; $121.3 million assuming maximum redemptions |
| Pro forma total liabilities | $38.5 million under both redemption scenarios |
| Pro forma shareholders’ equity | $346.6 million assuming no redemptions; $82.8 million assuming maximum redemptions |
Local Bounti entered into an up-to-$50.0 million subordinated Cargill credit facility in September 2021, borrowed approximately $16.3 million, used $10.0 million to repay its prior Cargill facility, and had approximately $16.0 million of pro forma long-term debt. The facility matures September 3, 2028.
Operating and Pro Forma Financial Metrics
| Metric | Six months ended June 30, 2021 | Year ended December 31, 2020 |
|---|---|---|
| Sales | $165 thousand | $82 thousand |
| Net loss | $18.247 million | $27.015 million |
| Net loss per share, no redemptions | $0.16 | $0.24 |
| Net loss per share, maximum redemptions | $0.21 | $0.32 |
| Gross profit/(loss) | $39 thousand gross profit | $9 thousand gross loss |
Based on the reported pro forma figures, sales remained very limited relative to operating expenses. The six-month gross margin was approximately 24% ($39 thousand gross profit on $165 thousand of sales), while the full-year 2020 result was a gross loss. The filing does not provide a clear comparable prior-period revenue growth rate or operating cash flow figure.
Material Changes and Ownership
- The principal change from the prior disclosure was the addition of 2.5 million PIPE shares and $25.0 million of gross proceeds, increasing total PIPE financing to $150.0 million.
- Assuming no redemptions, modeled post-closing ownership is approximately 24.5% public shareholders, 13.4% PIPE investors, 6.1% sponsor and initial shareholders, and 55.9% existing Local Bounti stockholders.
- Assuming maximum redemptions, modeled ownership is approximately 17.7% PIPE investors, 8.1% sponsor and initial shareholders, and 74.1% existing Local Bounti stockholders; public shareholders would hold no shares in the modeled scenario.
- Leo directors and officers committed to purchase up to 1.525 million PIPE shares for $15.25 million.
- Convertible notes are expected to convert into approximately 3.190 million shares at closing. The notes had a combined face value of approximately $26.1 million and an 8% interest rate.
- Modeled pro forma shares outstanding are 113.0 million with no redemptions and 85.5 million with maximum redemptions, excluding certain warrants and contingent earnout shares.
Outlook, Risks, and Unusual Items
- The transaction is not yet completed. Failure to obtain shareholder approval, satisfy closing conditions, maintain NYSE listing, or manage redemption levels could prevent or delay closing.
- The filing presents unaudited pro forma information for transaction analysis only; actual results and final transaction adjustments may differ materially.
- Pro forma results exclude anticipated synergies, operating efficiencies, tax savings, and cost savings.
- Local Bounti remains loss-making and has minimal reported revenue. The filing provides no formal operating or revenue guidance.
- Unusual pro forma items include transaction expenses, transaction bonuses, warrant fair-value adjustments, convertible-note settlement and fair-value adjustments, and elimination of historical trust-account investment gains.
- Risks include execution of the business combination, redemption volume, legal proceedings, competition, growth management, retention of key employees, regulatory changes, economic conditions, COVID-19 effects, and the ability to realize expected transaction benefits.
Investor Verification Checklist
- Verify whether the business combination and PIPE financing ultimately closed and the final amount of shareholder redemptions.
- Reconcile final cash, debt, transaction expenses, and minimum cash compliance against the modeled scenarios.
- Review Local Bounti’s subsequent financial statements for revenue growth, gross margins, cash burn, liquidity, and operating cash flow.
- Confirm the final share count, warrant treatment, convertible-note conversion, earnout dilution, and ownership percentages.
- Assess the terms, outstanding balance, covenants, and future borrowing capacity under the Cargill subordinated credit facility.
- Review subsequent filings for changes to the merger agreement, litigation, closing conditions, NYSE listing, or management’s operating outlook.