Vertical farming firm AeroFarms and Spring Valley Acquisition Corp., a publicly traded special purpose acquisition company (SPAC), have agreed to call off their planned merger, effective immediately, the companies said in a statement. The deal, announced in March, would have valued the new company at $1.2 billion.
The companies did not specify why they decided to terminate the planned merger. AeroFarms Co-Founder and CEO David Rosenberg, who would have led the new entity, said his company decided the merger was "not in the best interests of our shareholders."
The failure of the AeroFarms SPAC deal is somewhat surprising considering how much money the controlled environment agriculture space has attracted recently in large fundraising rounds, including BrightFarms, Revol Greens, and more recently, Bowery Farming, which raised $300 million this past May. AeroFarms has raised a total of $238 million over 10 funding rounds, according to Crunchbase.
In the months leading up to AeroFarms' planned merger with Spring Valley and its public debut, the vertical farming company seemed to be making the case to investors that it had vision, expertise and most importantly, growth potential.
In April, AeroFarms had a groundbreaking for what it claimed would be the largest and most technologically advanced aeroponic indoor vertical farm in the world, located in Danville, Virginia. In June, it began construction on a research center in Abu Dhabi that it dedicated to trying to solve some of the world’s greatest agriculture challenges. This past July, AeroFarms expanded further into trendy microgreens and doubled its retail footprint at Whole Foods Market stores in the Northeast and launched a pilot with Walmart in the Mid-Atlantic. And in August, it announced a multiyear research agreement with ingredient giant Cargill that would look at boosting cocoa bean yields.
The drumbeat of news made Rosenberg's statement on why it was pulling out of the merger difficult to reconcile.
"We made this decision to ensure that AeroFarms is in an optimal position to pursue our growth strategy and to deliver on our mission to grow the best plants possible for the betterment of humanity," said Rosenberg. He noted that AeroFarms continues to have "a great working relationship" with Spring Valley. (Food Dive reached out to AeroFarms for additional comment but has not received a response as of press time.)
Exactly why the deal fell through isn't clear. At least early on, signs were positive, with Spring Valley shareholders voting on Aug. 30 overwhelmingly to approve the merger, according to an 8-K form filed with the Securities and Exchange Commission.
However, in a statement announcing the results of the vote, Spring Valley noted the minimum cash requirement as spelled out in the agreement had not yet been met. The SPAC and AeroFarms would look for additional, agreed upon sources of capital as they worked toward an anticipated closing date of Sept. 24.
Behind the scenes, something more complex may have been at work. Erik Gordon, a business professor at the University of Michigan, told Food Dive that shareholders of Spring Valley might have taken advantage of a clause in the terms of the SPAC documents that allowed them to vote in favor of the merger while at the same time redeeming the shares they owned for $10 each — the initial amount they paid for them.
At the same time, these individuals retained warrants that gave them the option to buy shares at $11.50, a move that allows them to benefit if the SPAC merges with a company and its stock price rises above this level.
As more investors decided to take the $10 per share rather than rolling over their stock into the new company, Spring Valley fell short of the $225 million it agreed to bring to the deal when the merger closed. The SPAC, Gordon said, appears to have made efforts to find other ways to replace the funding — evidenced by a September announcement where both parties underscored their commitment to the deal — but was unable to do so.
The Spring Valley SPAC has been trading well below the $10 level for the last three weeks, and it was apparent shareholders felt more confident about getting their investment back than betting on the future of AeroFarms.
"This is a busted deal," Gordon said. "I guess the more people learned about AeroFarms, or the more they thought about AeroFarms, the harder it was to get the stock price even back up to $10. Nobody likes the AeroFarms deal enough to make it worth $10. You're safe if you redeem, you'll walk away whole and keep the warrants that just might be worth something in the future."
Spring Valley investors appeared to welcome the news; its stock leaped more than 10% by close of trading on Thursday, the day the decision to terminate the merger was announced.
AeroFarms would have been only the second controlled environment agriculture firm to go public. In February, indoor greenhouse giant AppHarvest completed its merger with SPAC Novus Capital in a deal valued at $1 billion. But there too, investors' interest seems to have waned. While AppHarvest's stock price spiked to a high of $37.64 on Feb. 22, a few weeks after it completed the merger, it has since fallen and has stayed near $6 and below through most of October.
Christopher Doering contributed to this report.