Mudrick Capital Acquisition Corp. II: Attractive Warrants After Failed Deal


  • Mudrick Capital Acquisition Corp. II tried to take TOPPS public but ultimately that deal failed.
  • SPACs have a limited lifespan and the clock is ticking.
  • The market seems worried the SPAC won't get a deal done because the warrants are trading relatively cheap.
  • Looking for a portfolio of ideas like this one? Members of Special Situation Report get exclusive access to our model portfolio. Learn More »

TWEEDE kans vooruit: weg teken: Trailer mobiele waarschuwingsbord geparkeerd door de weg met woorden voor de veiligheid door oranje kegels

Bill Oxford/iStock via Getty Images

Mudrick Capital Acquisition Corp. II (NASDAQ:MUDS) had a deal lined up for Topps Trading. The short of it is that the deal died and now Mudrick is looking for deals again. Some time wasted the company still has 11 months on the clock and can try to extend that if necessary. MUDS is basically run by a team from Mudrick Capital Management, L.P. This is a firm that invests in long and short investments in distressed credit. It was founded in 2009 with $5 million under management and that had apparently ballooned to $2.5 billion under management in 2020. That's quite an accomplishment and they're probably doing something right.

The market really liked the prior deal because it had to do with sports trading cards and came at a point in time when anything that had to do something with NFT's traded really well. When a deal then goes sour there are a lot of disappointed shareholders who bought at much higher prices.

The team has a lot of very capital-market and business-savvy people but not a lot of insight into tech deal flow which are the deals that are sometimes very popular. The expertise here is around beaten-down companies or underloved assets.

Here's a full interview with founder Jason Mudrick:

The SPAC is almost at its half-life but I'd be surprised if this team can't put something reasonable together. Especially because they have expertise in areas that are generally not prime hunting territory for the rest of the SPACs out there.

Earlier in the year I've been long stock and sold some calls. I had a number of covered calls expiring and that triggered me to re-evaluate the position. The common units trade at $9.95 (these include 1/2 warrant), the units trade at $10.18, and the 2027 warrants trade at $0.60.

The shares are trading above the median of SPAC's that are looking for a deal. The median unit of a SPAC looking for a deal is $9.96. The median for warrants on such SPACs is $0.70. But SPACs with options have a median warrant value of $0.96. On the other hand, SPACs that include more warrants with units tend to trade a little lower.

The warrant is a good one that can be redeemed by the company for around $18 but not much lower(which is quite common with warrants of good sponsors). I think the warrant is quite attractive here even though it expires worthless if there's ultimately no deal completed before the end date of the SPAC. I'd also think a typical target for Mudrick (given its distressed focus) could have a volatile path after despaccing. Higher volatility should mean a more valuable warrant.

The primary reason I'm hesitating to go for the warrants is the fact that my margin requirements to hold it are incredibly high. I have to hold maintenance capital in excess of 100% to hold it. If these margin requirements are widespread it could also explain why the warrant trades relatively poorly.

Check out the Special Situation Investing report if you are interested in special situations like spin-offs, share repurchases, rights offerings, M&A and SPACs.

This article was written by

Bram de Haas profile picture
Professional risk-taker focused on smart bets and risk control.
15 years of investing and I feel like a rookie in his first year at the academy. My roots are in the value school but over time I've learned to respect different approaches. I'm interested in what quants do, options traders do, and even what WallStreetBets is doing (keep your friends close and...)

I gravitate towards special-situations. That means situations around companies or the market where the price can move in a certain direction based on a specific event or ongoing event. This eclectic and creative style of investing seems to suit my personality and interests most closely.

Since 2020 I host a podcast/videocast where I discuss (special-situation/event-driven) market events and investment ideas with top analysts, portfolio managers, hedge fund managers, experts, and other investment professionals. I highly recommend it (pick episodes around topics that interest you) for the amazing guests that come on with regularity.

I've been writing for Seeking Alpha since 2013 after playing p$ker (I'm not that immature but the real word gets censored) professionally. In 2018 I founded Starshot Capital B.V. A Dutch AIF manager. Follow me on Twitter @Bramdehaas or email me Dehaas.Bram at Gmail


Disclosure: I/we have a beneficial long position in the shares of MUDS either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: long shares, short calls and thinking about changing my position to a long warrant or long warrant/ short call position

Recommended For You

Comments (16)

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.