Why Social Capital Hedosophia Holdings III Tanked on Tuesday


What happened

Social Capital Hedosophia Holdings III (NYSE: IPOC) was a stock market stinker on Tuesday, cratering by nearly 14%. This followed news that the special purpose acquisition company (SPAC) was effectively buying health insurance provider Clover Health in a deal valued at $3.7 billion. This parking of Clover Health into a SPAC will turn it into a publicly traded company.

So what

Clover Health sells Medicare Advantage insurance plans in seven U.S. states. All told, its policy holders number over 57,000. These operations are harnessed to sophisticated data-dissemination capabilities, which Social Capital’s founder Chamath Palihapitiya claimed in a tweet result in “lower costs, less waste and, most importantly, better outcomes.”

Stethescope atop US currency and insurance claim form.

Image source: Getty Images.

The deal is the latest SPAC acquisition — which is really a sort of reverse initial public offering (IPO), as it brings a company public via an existing entity — for busy financier Palihapitiya.

Its two predecessors were Social Capital Hedosophia Holdings I, which in 2019 absorbed Virgin Galactic Holdings, and Social Capital Hedosophia Holdings II, soon to contain existing real estate company Opendoor. 

Now what

As a privately held company, Clover Health doesn’t disclose much about its finances — perhaps that was a reason investors traded Social Capital Hedosophia Holdings III down so much on Tuesday. In his tweet, Palihapitiya touted the vast growth potential of Medicare Advantage. In this respect he’s accurate, as the U.S. population is getting older as a whole, and in the years to come will surely require more insurance coverage.

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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Virgin Galactic Holdings Inc. The Motley Fool owns shares of Social Capital Hedosophia Holdings II and Social Capital Hedosophia Holdings III. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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