There have been rumors that Altimeter Growth SPAC might take ride-hailing company Grab public. There are two SPACs from the sponsor, Altimeter Growth Corp. (AGC) and Altimeter Growth Corp. 11 (AGCB). Should you buy AGC on news of its potential reverse merger with Grab?
AGC stock gained 4.3 percent on April 6 and was trading over 13 percent higher in pre-market trading on April 7 at 4:45 a.m. ET amid optimism about its merger with Grab.
AGC and Grab merger news
There hasn't been a confirmation on the merger yet even though the rumors have been floating around for almost a month. However, this is typically the case with SPACs. In the first quarter of 2021, Churchill Capital IV (CCIV) also announced a merger with Lucid Motors after weeks of speculation and rumors.
So far, the rumors about Altimeter Growth’s merger with Grab haven't offered any insight into the prospective valuation or which AGC SPAC would merge with the ride-hailing company.
On April 7, The Financial Times reported that AGC will merge with Grab and the deal will be announced as soon as this week. The deal could value Grab at $35 billion, which would make it the biggest transaction for any SPAC.
AGC PIPE investment
AGC raised $450 million from the IPO and the deal could also involve a PIPE (private investment in public equity) of $2.5 billion. Usually, the PIPE investment happens at the IPO price, which is $10 in AGC’s case. PIPE investors in CCIV would invest at $15, which was a premium of 50 percent over the IPO price.
However, since CCIV was trading at elevated price levels, it fell after the merger with Lucid was announced. As for AGC, it wasn’t trading at a massive premium over the IPO price, so the big PIPE investment wouldn't dampen investor sentiments.
Buying Altimeter Growth (AGC) stock on merger rumors
It still isn't certain whether AGC will merge with Grab. That said, there's massive investor interest in the ride-hailing company. The deal is said to value Grab at $35 billion. In contrast, Uber has a market capitalization of $108 billion, while Lyft is valued at a little above $21 billion.
Before more details about the Grab merger emerge, including the company’s financials and growth outlook, AGC SPAC stock would remain a speculative play. In SPAC mergers, stocks tend to rise sharply on merger announcements if the deal is valued attractively.
CCIV was a major exception here but more than the valuation of Lucid Motors, it was the irrational exuberance before the merger announcement that led to the sharp fall in CCIV stock. AGC could be a good way to play the ride-hailing market in South Asia.
According to The Financial Times, Grab has raised $12 billion so far as private investment and has $5 billion as cash on its balance sheet. Previously, Grab was also looking at a merger with Gojek, the Indonesian ride-hailing company. However, the deal didn't go through.
Grab was also looking at funding from Chinese e-commerce giant Alibaba. However, Alibaba faced a flurry of issues in 2020, which also led to the shelving of Ant Financial’s IPO. There were reports that the Ant Financial IPO might be back soon but we haven’t heard anything concrete yet.
Coming back to AGC’s rumored merger with Grab, it would be worth noting that Lyft and Uber, the two publicly traded ride-hailing companies, haven’t had a good run since their listing. For now, investors seem gung-ho on the possible merger between AGC and Grab.