How will the SPAC transaction affect shareholder dilution and the overall capital structure?

Shareholder dilution & capital structure

The Denali SPAC merger will convert the SPAC’s trust cash and any PIPE (private‑placement) funding into equity of the combined company. In a typical biotech‑SPAC deal, roughly 20‑30 % of the post‑close outstanding shares are issued to SPAC shareholders and PIPE investors, with an additional ~5‑10 % coming from exercised warrants. Consequently, existing Scilex shareholders—who currently own the “majority‑owned” subsidiary Semnur—will see their ownership percentage fall, although they will still control the entity because Scilex will retain a controlling stake (often > 50 %). The dilution will compress earnings‑per‑share (EPS) and key per‑share metrics, so analysts will likely re‑baseline valuation multiples (e.g., EV/Revenue, EV/EBITDA) on a fully‑diluted basis.

From a capital‑structure perspective the transaction adds a sizable cash infusion (the SPAC’s trust balance, typically $100‑$150 M) and any PIPE proceeds (often another $50‑$100 M) to Semnur’s balance sheet, dramatically increasing liquidity for R&D and commercialization of its non‑opioid pain portfolio. At the same time, the combined entity will inherit the SPAC’s existing warrants and any convertible notes that were part of the deal, creating a layered capital stack: (1) common equity (including the new SPAC‑issued shares), (2) preferred or PIPE securities, and (3) outstanding warrants. Debt levels are expected to remain low, but the higher share count means a lower net‑debt‑to‑EBITDA ratio, which could be viewed positively by credit analysts.

Trading implications

• Short‑term: The announcement already lifted sentiment (≈60) and pushed SCLX higher on volume, but the market will price in the dilution impact. Look for a modest pull‑back as the float expands; a break above the recent high (≈$12.80) with strong volume could signal that investors are comfortable with the cash boost and are pricing the dilution already in. Conversely, a breach of the $11.50 support may reflect concerns over EPS dilution and warrant overhang.

• Mid‑term: The key catalyst will be the ability of Semnur to deploy the SPAC proceeds into its pipeline (e.g., the upcoming Phase III for its lead non‑opioid analgesic). If the company can demonstrate near‑term revenue growth, the dilution becomes less material and the stock can re‑rate. Consider buying on dips if the post‑combination balance sheet looks strong (cash > $200 M, minimal debt) and the valuation on a fully‑diluted basis remains below comparable non‑opioid pain peers (e.g., EV/Revenue < 5×).

• Risk: Dilution‑related EPS compression, warrant‑exercise overhang, and the broader slowdown in SPAC enthusiasm could pressure the share price. Maintain a stop‑loss just below the $11.50 support or the 50‑day moving average, and size positions to account for the higher share count and potential volatility in the biotech/SPAC sector.