Leo Holdings Corp. II (LHC): Facing Mandatory Liquidation After Failed Business Combination

Leo Holdings Corp. II (LHC) is a blank check company that was formed in 2020 for the purpose of entering into a merger, share exchange, asset acquisition, share purchase, recapitalization, reorganization or other similar business combination with one or more target businesses. The company's sponsor is Leo Investors II Limited Partnership, a Cayman Islands exempted limited partnership.

Business Overview

Leo Holdings Corp. II completed its initial public offering in January 2021, raising $375 million. The company was formed to identify and acquire a business that would benefit from the founders' and management team's operating and investing experience. However, after failing to complete a business combination within the required timeframe, the company is now facing mandatory liquidation.

Terminated Business Combination

On January 12, 2023, Leo Holdings Corp. II, its merger subsidiaries Glimpse Merger Sub, Inc. and Glimpse Merger Sub II, LLC, and World View Enterprises Inc. entered into a business combination agreement. The plan was for Glimpse Merger Sub, Inc. to merge with and into World View, with World View being the surviving corporation, and then for World View to merge with and into Glimpse Merger Sub II, LLC, with Glimpse Merger Sub II, LLC being the surviving company and a wholly owned subsidiary of Leo Holdings Corp. II.

However, on November 12, 2023, Leo Holdings Corp. II determined that it would not be able to consummate the business combination within the time period required by the company's amended and restated memorandum and articles of association. As a result, on November 20, 2023, the company and World View mutually agreed to terminate the business combination agreement.

Extension of Combination Period

In an effort to complete a business combination, Leo Holdings Corp. II took several steps to extend the combination period. On January 9, 2023, the company held an extraordinary general meeting of shareholders to amend the company's amended and restated memorandum and articles of association to extend the date by which the company had to consummate a business combination from January 12, 2023 to April 12, 2023. The shareholders approved this extension, and the company filed the amendment with the Registrar of Companies of the Cayman Islands.

Additionally, the company's sponsor agreed to contribute $720,000 to the trust account within five business days of the extension meeting, and up to an additional $1,440,000 in six equal installments to cover further one-month extensions through October 12, 2023, if needed.

On October 12, 2023, the company held another extraordinary general meeting to further extend the combination period, this time from October 12, 2023 to November 12, 2023, and to allow for up to eleven additional one-month extensions through October 12, 2024. The shareholders approved this second extension, and the company filed the amendment with the Registrar of Companies of the Cayman Islands.

In connection with the second extension, the company's sponsor agreed to contribute an additional $240,000 to the trust account within ten business days, and up to $2,640,000 in eleven equal installments to cover further one-month extensions through October 12, 2024, if needed.

Liquidation and Redemption of Shares

Unfortunately, Leo Holdings Corp. II was unable to complete a business combination by the November 12, 2023 deadline. As a result, pursuant to the company's amended and restated memorandum and articles of association, the company's board of directors has determined to (i) cease all operations except for the purpose of winding up; (ii) redeem all outstanding Class A ordinary shares on or about December 4, 2023 at a per-share redemption price of approximately $10.95, based on the amount in the trust account as of November 15, 2023; and (iii) as promptly as reasonably possible following the redemption, subject to the approval of the holders of the company's Class B ordinary shares and the board of directors, liquidate and dissolve.

Financials

For the nine months ended September 30, 2023, Leo Holdings Corp. II reported net income of $421,000, which consisted of $1.5 million in net gains on the cash and investments held in the trust account, partially offset by a $461,000 loss in the change in fair value of warrant liabilities, $961,000 in general and administrative expenses, and $90,000 in related party general and administrative expenses.

For the full year 2022, the company reported annual net income of $13,158,000, annual revenue of $0, annual operating cash flow of -$160,400, and annual free cash flow of -$160,400.

As of September 30, 2023, the company had approximately $591 in its operating bank account and a working capital deficit of approximately $3.8 million. The company's liquidity needs have been satisfied through contributions from the sponsor and the net proceeds from the initial public offering and private placement held outside of the trust account.

Risks and Outlook

The primary risk facing Leo Holdings Corp. II is the mandatory liquidation and dissolution of the company due to its failure to complete a business combination within the required timeframe. The company's board of directors has determined to cease all operations except for the purpose of winding up and redeeming all outstanding Class A ordinary shares.

Given the company's inability to find a suitable target for a business combination, there is no further outlook or guidance to provide. The company's focus is now solely on the orderly liquidation and dissolution process.

Conclusion

Leo Holdings Corp. II's journey as a blank check company has come to an end, as the company faces mandatory liquidation after failing to complete a business combination within the required timeframe. The company's efforts to extend the combination period were ultimately unsuccessful, and it now must focus on redeeming its outstanding shares and winding up its affairs. While the company's financial performance during its brief operational history was relatively stable, the inability to find a suitable target has led to this unfortunate outcome for shareholders.