Locust Walk Acquisition Corp. (LWAC) stock was trading sharply higher in early trading on Aug. 25 after shareholders approved the merger with eFFECTOR. What’s happening with LWAC stock? What's the forecast for eFFECTOR stock after the merger with LWAC?
While the U.S. IPO market has dried up in August, which has anyways been slow for new listings, there have been several SPAC mergers. Alpha Healthcare Acquisition (AHAC) shareholders have also approved the merger with Humacyte.
What’s happening with LWAC stock?
It’s pretty unusual for a SPAC stock to rise over 100 percent when the merger is approved. There have been multiple instances when SPACs soared after making a merger announcement. However, this even happened when the SPAC mania was at its peak. The recent reaction to SPAC merger news has been lukewarm at best.
Several SPACs are trading below their IPO price of $10. In fact, LWAC was also trading below $10 before the merger approval. It's worth noting that while almost 72 percent of LWAC stockholders voted to approve the merger, most of the stockholders voted to redeem their shares. Since 97 percent of SWAC stockholders opted for redemption, the SPAC trust is left with only $5.2 million in cash.
There was a private placement of $60.7 million, which would mean that eFFECTOR will receive total cash proceeds of $65.9 million as part of the transaction. LWAC had to waive off the minimum cash requirement of $100 million to get the deal through.
Why is LWAC stock rising?
LWAC stock is rising amid a short squeeze. Since most LWAC stockholders have opted for redemption, the outstanding share count would fall to just about half a million from 17 million. According to David Faber of CNBC, “Anybody short it today suddenly finds themselves today saying 'wait a second' I can't borrow this stock anymore.” He added, "It doesn't exist, I got a huge short squeeze on my hands."
eFFECTOR stock forecast
eFFECTOR is a clinical-stage biopharmaceutical company that's working on STRIs (selective translation regulator inhibitors). Like all clinical-stage companies, it's a risky bet. The forecast would depend on how the product under development progresses.
In the release, LWAC said that “eFFECTOR’s STRI product candidates target the eIF4F complex and its activating kinase, mitogen-activated protein kinase 1/2 (MNK 1/2).” The company also said, “Each of eFFECTOR’s product candidates is designed to act on a single protein that drives the expression of multiple functionally related proteins, including oncoproteins and immunosuppressive proteins in T cells, that together control tumor growth, survival and immune evasion.”
The market for cancer care is growing quickly. If eFFECTOR can successfully commercialize the products that it's developing, the stock could see better days ahead. Since the surge in the stock is mainly driven by a short squeeze, the rally should fade away soon.
Also, since eFFECTOR has raised only a fraction of the cash that it was originally looking at from the business combination, it would have to consider a stock sale in the future. If the stock price falls from these levels, it would lead to more dilution for investors.