Will Blue Water (BLUW) Repeat LWAC’s ‘Magic’ after Merger Vote?

Mohit Oberoi, CFA - Author

Aug. 27 2021, Published 11:06 a.m. ET

Blue Water Acquisition (BLUW) shareholders will vote on Aug. 27 to finalize the merger with Clarus Therapeutics. The meeting was previously scheduled for Aug. 12 but was postponed. Many people are betting on a potential short squeeze as we saw in Locust Walk Acquisition Corp. (LWAC) stock after the merger voting. Can BLUW repeat the magic?

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Thanks to the steep fall in SPAC stock prices, a lot of investors have opted for a redemption option. This basically means that investors can get back their money from the trust. The IPO price for most SPACs is $10. On redemption, investors get the IPO price plus any interest that the money has accrued since the IPO.

What happened with LWAC?

Something strange happened in the LWAC merger voting. While the stockholders approved the merger with eFFECTOR, 97 percent of the stockholders opted for the redemption option. The outstanding share count for LWAC fell from 17 million to half a million.

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LWAC stock short sellers were caught unaware since there simply weren’t many shares for them to cover their positions. What happened thereafter was an epic short squeeze. Ahead of the BLUW merger voting, the stock surged above $30 on short squeeze speculation, after sagging near the $10 level for a long time. However, the fall was equally swift and the stock is now back below $10.

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There has been a wave of SPAC redemptions in 2021. Several of Tortoise Acquisition Corp. (SNPR) SPAC’s shareholders also opted for redemption even though the merger with Volta was approved. Huge redemptions change the dynamics since the company going public gets lower cash than what was previously expected.

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Why BLUW stock is falling?

Speculators who entered Blue Water Acquisition stock hoping for a short squeeze seem to be exiting. The stock has fallen to a new 52-week low. After the merger voting on Aug. 27, we’ll know whether or not BLUW will merge with Clarus Therapeutics.

Blue Water Acquisition stock short interest

According to the data from Fintel, the FINRA short volume for Blue Water Acquisition stock was almost 2.3 million shares on Aug. 27. The short volumes spiked along with the overall volumes on that day. BLUW isn't among the popular SPACs and its average daily trading volumes were only about 20,000 shares daily. The FINRA short volumes have also been below 10,000 shares before the recent frenzy.

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Could BLUW repeat the magic of LWAC?

The outstanding share count for BLUW SPAC is low. If the majority of its stockholders also opt for redemption, we could see a squeeze-like situation like we saw with LWAC. However, the recent fall in BLUW SPAC looks like a buying opportunity.

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Usually, SPAC stocks rise after a merger is approved. In BLUW’s case, it has hit a new low. In the worst-case scenario, if the stockholders don’t approve the merger and the SPAC gets terminated, investors would get back $10 plus any accrued interest.

The fall in Blue Water Acquisition stock is more of a result of speculative trading rather than any fundamentals. The fall looks like a good buying opportunity irrespective of the voting results that will be out soon.


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