August 31, 2020

Palantir’s “Direct Listing” IPO

Last week, Palantir filed the Form S-1 for its anticipated “Spotify-style” IPO. Despite new NYSE rules on “primary” direct listings, the company isn’t selling any shares in this deal – rather, existing shareholders will resell shares of Class A common stock on the NYSE.

For a company that’s been cloaked in mystery and has bestowed the title “legal ninja” on its in-house lawyers, the registration statement – much like a direct listing – is anti-climactic. Which is a compliment to everyone involved! As John tweeted, “the S-1 looks like it was written for grownups.” And unlike some of the other direct listings that we’ve seen, this one does include a D&O lock-up that runs until after the company announces its year-end results.

A few other things that jump out are:

Prospectus cover page – Underwriter logos are conspicuously absent (like other direct listing companies, Palantir has engaged several financial advisors on the deal – whose names first appear in a risk factor on page 65 – and of course their role is further described in the Plan of Distribution)

Plan of Distribution – Although there’s no formal book-building, there’s still the impression of some “shadow book-building.” The disclosure is clear that the banks are conducting investors communications & presentations only in connection with “investor education” and not to coordinate price discovery or sales…but it also says that the designated market maker will consult with Morgan Stanley on the opening public price, who will provide input based on pre-listing selling & buying interest that it becomes aware of. I’m sure this section was pored over by legal counsel & banks in excruciating detail, so check out the full thing if you’re interested in how the mechanics are described.

CEO Letter – Typical stuff we see from unicorns – soaring language about the company and its rejection of a typical business model – but also a critique of Silicon Valley’s “values & commitments” and a pitch that Palantir is forward-thinking, moral and justified in its approach to data collection.

Privacy – Under the heading “Our Team” on page 168, Palantir describes its “Privacy & Civil Liberties Engineering” team and its “Council of Advisors on Privacy & Civil Liberties” – as well as privacy-enhancing technologies.

Board Composition & Governance – Three of the six independent directors joined the board in July. The governance structure isn’t in place yet but is contemplated as part of the NYSE listing.

Multi-Class Cap Structure – In addition to the Class A common shares being resold in the offering, the company describes its Class B common stock (10 votes per share) and Class F common stock (a variable number of votes, all shares held in a voting trust established by co-founders Alex Karp, Stephen Cohen and Peter Thiel, and controlling up to 49.99% of total voting power). A risk factor notes that the company’s cap structure could make it ineligible for inclusion in certain indices.

Founder Voting Agreements – The company has yet to file the charter with the terms of the “Class F” shares – or the stockholders agreements – and that’s probably the most interesting part of the offering.

This registration statement will likely go effective before the new Reg S-K rules go into effect, so Palantir won’t have to worry about immediately revising its disclosure. While nobody seems too surprised about the net loss figures (this is a unicorn, after all), this Reuters article says that the offering will “test the appetite of capital market investors who have in recent years shown an increasing wariness of backing loss-making startups, most notably WeWork, which botched its IPO last year.” But as we’ve seen, 2020 is a whole new animal.

Shelf Registrations & Takedowns: 10-Page Guide

This 10-page Mayer Brown memo gives a nice overview of the shelf registration & takedown process – including permitted offerings, liability & diligence issues, benefits of the shelf registration process, filing requirements, and a timely section on how market volatility may affect WKSI status and shelf eligibility. The memo gives this checklist of key questions to ask if you’re contemplating a shelf registration or takedown (also see our 140-page “Form S-3 Handbook” for lots of detailed guidance):

1. Is the issuer planning to sell new securities or outstanding securities?

2. Are securities being immediately offered after the registration statement becomes effective?

3. Will the issuer choose to offer securities in a delayed primary offering?

4. Is the issuer considered a well-known seasoned issuer?

5. Is the issuer subject to the baby shelf limitation?

6. Is the issuer considering using a shelf registration for one or more acquisitions?

7. Will the issuer be required to file a post-effective amendment as opposed to a prospectus supplement?

Our “Proxy Disclosure & Executive Compensation Conferences” – Three Weeks Away!

You can still register for our popular conferences – the “Proxy Disclosure Conference” & “17th Annual Executive Compensation Conference” – to be held virtually Monday – Wednesday, September 21st – 23rd. We’ll be covering the latest issues that you need to know – including COVID-related pay adjustments and disclosures, human capital management, navigating proxy advisors, and shareholder proposal rules & trends. Here are the agendas – 15 panels over 3 days.

New this year, we have also added interactive roundtables to discuss pressing topics! We hope you’ll join us for one of these half-hour breakout sessions – you can sign up here. To make the most of your experience, check out this blog for tips for “virtual networking” for lawyers. Here’s an excerpt:

Be On-Camera: Speaking of cameras, please do not participate in a zoom networking event without being able to have a camera available. That black square with your name will not allow others to see who you are. It would be the equivalent to going to an in-person event and wearing a paper bag over your head. People would like to see who you are. Also, make sure that you are well lit when you are on camera. Too many people are on camera with the light behind them and you cannot see their faces clearly. A light should be in front of you.

Show up on time (or even early): This is something I advocate for IRL networking, but concerning virtual networking, it is even more important. It is distracting to have someone enter a conversation in the middle of a virtual event, as opposed to a live networking event, and should be avoided at all costs. And, if you have to leave early, you can just make mention that you have an appointment that you have to attend to and thank everyone who was there. You can send a note to the host using the chat feature. Or, you can just leave quietly.

As the blog notes, there are no marketing and business development tactics that cannot be done virtually. So take advantage of this opportunity to meet with your fellow practitioners in a low pressure way, have a good conversation, and make a connection or two.

Liz Dunshee