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In a Special Purpose Acquisition Company (SPAC), public shareholders are typically given the right to redeem their shares for cash under certain circumstances, including in connection with a business combination or liquidation.
A key question for investors and practitioners is how the redemption price per share is determined.
This article explains the standard formula used to calculate the SPAC redemption price and the components that affect it.
What Is the SPAC Redemption Price?
The redemption price represents the amount of cash a public shareholder receives per share when electing to redeem their shares.
In the event of a liquidation, the redemption price is generally calculated based on the funds held in the SPAC’s trust account, which contains the proceeds from the SPAC’s initial public offering.
The calculation ensures that public shareholders receive their pro rata share of the trust account, subject to certain adjustments.
Standard Redemption Price Formula
The redemption price per share is calculated as follows:
Redemption Price per Share = (Trust Account Balance + Interest Earned − Taxes Payable − Permitted Withdrawals) ÷ Total Outstanding Public Shares
This formula can also be expressed in a simplified format:
Redemption Price = (TA + I − T − E) ÷ PS
Key Components of the Formula
Each element of the formula reflects a specific aspect of the SPAC’s trust account:
- TA (Trust Account Balance): The aggregate amount on deposit in the trust account.
- I (Interest Earned): Interest earned on the funds in the trust account that has not previously been released to the company.
- T (Taxes Payable): Taxes owed on the interest income or other amounts associated with the trust account.
- E (Permitted Withdrawals): Amounts that may be withdrawn from the trust account to pay for dissolution or liquidation expenses.
- PS (Public Shares Outstanding): The total number of public shares outstanding at the time of redemption..
Pro Rata Distribution
The redemption is effected on a pro rata basis, meaning that each public shareholder receives the same per-share amount based on the formula above.
This structure ensures that all public shareholders are treated equally and receive their proportionate share of the trust account.
Key Takeaway
The SPAC redemption price is determined by a straightforward formula based on the trust account balance, adjusted for interest, taxes, and permitted expenses, and divided by the number of public shares outstanding.
Understanding this calculation is important for both investors evaluating redemption decisions and companies structuring SPAC transactions.
If you would like to discuss SPAC redemption mechanics or structuring considerations in de-SPAC transactions, our team would be happy to assist.
Contact Person: Nick L. Torres, Esq. and Zhiqi Zheng, Esq.
Written By Weiwei Lu
Weiwei Lu specializes in securities law and corporate matters, and general public company work. She leverages her bilingual proficiency in English and Mandarin and her deep understanding of cross-border business and cultural environments to help Chinese companies navigate the complex and rapidly evolving U.S. legal and regulatory landscape. With strong cross-cultural communication skills, she supports clients in facilitating efficient transactions and achieving their business goals.
