10-Q: Nabors SPAC Faces Legal Battle, High Redemptions

Nabors Energy Transition Corp. II reports a net income decline, significant share redemptions, and a legal dispute with its target acquisition, e2.

Summary

• Net income for the three months ended June 30, 2025, was $2,352,808, a decrease from $3,572,019 in the same period of 2024.
• Net income for the six months ended June 30, 2025, was $3,229,304, down from $7,368,911 for the six months ended June 30, 2024.
• General and administrative expenses significantly increased to $1,061,372 for the three months ended June 30, 2025, from $259,995 in the prior year, and to $3,515,322 for the six months ended June 30, 2025, from $525,473 in the prior year.
• Cash used in operating activities for the six months ended June 30, 2025, was $421,342, compared to $202,415 for the same period in 2024.
• Shareholders approved an extension of the business combination period from July 18, 2025, up to twelve additional one-month periods, extending to July 18, 2026.
• In connection with the extension, 16,775,137 Public Shares were redeemed for approximately $186.7 million, or about $11.13 per share.
• The company filed a lawsuit against e2 on July 11, 2025, alleging breaches of the Business Combination Agreement, including delays in regulatory filings and non-ordinary course transactions.
• e2 filed counterclaims on July 31, 2025, alleging fraudulent inducement and breach of the Business Combination Agreement by Nabors Energy Transition Corp. II and its affiliates.
• Wells Fargo Securities, LLC and Citigroup Global Markets Inc. waived their portions of the deferred underwriting fees, resulting in no remaining deferred underwriting fee payable balance.

Sentiment

Score: 2

Explanation: The sentiment is highly negative due to the significant share redemptions, the ongoing legal dispute with the target company which jeopardizes the entire business combination, and the explicit 'going concern' warning. While an extension was secured and underwriting fees waived, these positives are overshadowed by the fundamental challenges to completing the merger and the increased cash burn.

Positives

• The company successfully secured an extension for its business combination period until July 18, 2026, providing more time to complete a merger.
• Underwriters Wells Fargo Securities, LLC and Citigroup Global Markets Inc. waived their deferred underwriting fees, totaling $10,675,000, which frees up funds for additional transaction expenses.
• The Trust Account balance increased to $338,525,863 as of June 30, 2025, from $331,781,130 as of December 31, 2024, primarily due to interest earned.

Negatives

• Net income significantly decreased to $2,352,808 for the three months ended June 30, 2025, from $3,572,019 in the prior year, and to $3,229,304 for the six months ended June 30, 2025, from $7,368,911 in the prior year.
• General and administrative expenses rose sharply to $1,061,372 for the three months ended June 30, 2025, from $259,995 in the prior year, and to $3,515,322 for the six months ended June 30, 2025, from $525,473 in the prior year.
• Cash used in operating activities increased to $421,342 for the six months ended June 30, 2025, indicating a higher cash burn rate.
• A substantial number of Public Shares (16,775,137) were redeemed, resulting in approximately $186.7 million being removed from the Trust Account, significantly reducing funds available for the business combination.
• The company is engaged in a legal dispute with its target acquisition, e2, regarding alleged breaches of the Business Combination Agreement, which introduces significant uncertainty and potential delays.
• Management has determined that the mandatory liquidation date of August 18, 2025 (if the business combination is not completed) raises substantial doubt about the company's ability to continue as a going concern.

Risks

• The company faces substantial doubt about its ability to continue as a going concern if it cannot complete an initial Business Combination by August 18, 2025.
• Ongoing legal proceedings with e2, including allegations of breach of contract and counterclaims of fraudulent inducement, could prevent or significantly delay the Business Combination.
• Geopolitical instability, including the Russia-Ukraine conflict and Middle East/Red Sea conflicts, could lead to market disruptions, volatility in commodity prices, and supply chain interruptions, adversely affecting the search for a business combination.
• Changes in U.S. trade policies, such as additional tariffs or trade barriers, could disrupt existing supply chains and trigger retaliatory efforts by other countries, negatively impacting the company's business and search for a target.
• The company's ability to complete a Business Combination is contingent on shareholder approval and satisfaction of other customary closing conditions, which are not guaranteed.
• The significant redemptions of Public Shares have reduced the funds available in the Trust Account for the Business Combination, potentially requiring additional financing.

Future Outlook

Management plans to consummate an initial Business Combination prior to the mandatory liquidation date of August 18, 2025, or the extended date of July 18, 2026. The company expects to incur significant costs in pursuing its acquisition plans and cannot assure success. New e2 (the combined entity) will enter into a Stockholder and Registration Rights Agreement and Lock-Up Agreements at closing, outlining post-closing governance and share transfer restrictions.

Management Comments

• We expect to continue to incur significant costs in the pursuit of our acquisition plans.
• We cannot assure you that our plans to complete an initial business combination will be successful.
• Management plans to consummate an Initial Business Combination prior to the mandatory liquidation date.

Industry Context

The company operates as a Special Purpose Acquisition Company (SPAC) targeting businesses in the energy transition sector, specifically those focused on reducing carbon or greenhouse gas emissions. This aligns with global trends towards decarbonization and sustainable energy solutions. The current geopolitical instability and potential changes in trade policies are noted as broader industry risks that could impact the company's ability to find and complete a suitable business combination.

Comparison to Industry Standards

• The significant share redemptions (16,775,137 shares for $186.7 million) are a negative indicator compared to successful SPACs, which aim to minimize redemptions to preserve trust capital for the target business. This level of redemption is high and reduces the capital available for the e2 transaction.
• The legal dispute with the target company, e2, is highly unusual and detrimental for a SPAC, as it directly threatens the completion of the proposed business combination. Successful SPACs typically proceed with a definitive agreement without such public litigation prior to closing.
• The 'going concern' warning is a critical red flag, indicating severe financial uncertainty if the business combination is not completed, which is a common risk for SPACs nearing their liquidation deadline, but exacerbated here by the legal issues.
• The increase in general and administrative expenses while operating as a shell company, coupled with declining net income, suggests increasing operational costs without corresponding progress towards a revenue-generating business, which is unfavorable compared to well-managed SPACs that control burn rate.

Corporate Governance

Legal Proceedings

• On July 11, 2025, the company and Merger Sub filed a complaint against e2 in the Delaware Court of Chancery, alleging e2 breached the Business Combination Agreement by delaying regulatory filings, engaging in non-ordinary course transactions without consent, and failing to provide required financials. The complaint seeks specific performance, a declaration that e2 has no valid basis to refuse to close, injunctive relief, and/or monetary damages.
• On July 31, 2025 (re-filed August 1, 2025), e2 filed counterclaims, alleging fraudulent inducement by the company, Merger Sub, Sponsor, and Nabors Industries Ltd., and claiming the company and Merger Sub breached the Business Combination Agreement. e2 seeks declarations that it has not breached the agreement and can validly terminate it.
• A five-day trial for this case is set to begin on January 12, 2026.

Related Party Transactions

• Overfunding Loans: Direct or indirect owners of the Sponsor loaned the company $3,050,000, outstanding as of June 30, 2025. These are non-interest bearing and repayable upon Business Combination or convertible into warrants.
• Administrative Support Agreement: The company reimburses the Sponsor or an affiliate $15,000 per month for office space, utilities, secretarial, and administrative support. $90,000 was incurred for the six months ended June 30, 2025, with accrued expenses totaling $352,500.
• Extension Note: On July 17, 2025, the company issued an unsecured promissory note for $250,000 to Nabors Lux, an affiliate of the Sponsor, in connection with the extension of the business combination period.

Stakeholder Impact

• Shareholders: Significant redemptions have reduced the per-share value of the Trust Account for remaining public shareholders. The ongoing legal dispute creates substantial uncertainty regarding the completion of the Business Combination and the future value of their investment. The 'going concern' warning poses a direct risk of liquidation.
• Employees (post-merger): The Corporate Services Agreement with Nabors Corporate Services, Inc. suggests potential support for e2's compliance, investor relations, HR, and tax functions, which could benefit future employees of the combined entity.
• Creditors: The 'going concern' warning indicates increased risk for creditors if the Business Combination fails and the company is forced to liquidate.

Next Steps

• Continue efforts to consummate the initial Business Combination with e2 prior to the mandatory liquidation date.
• Vigorously defend against e2's counterclaims in the legal proceeding, with a trial set for January 12, 2026.
• File a post-effective amendment to the registration statement or a new registration statement for the Class A ordinary shares issuable upon exercise of warrants as soon as practicable after the closing of the initial Business Combination.

Key Dates

Recommendation

The filing reveals critical issues that severely undermine the investment thesis for this SPAC. The substantial share redemptions have significantly depleted the Trust Account, reducing the capital available for the target business. More critically, the ongoing legal dispute with the target company, e2, casts serious doubt on the completion of the business combination itself, with a trial scheduled for January 2026. This introduces prolonged uncertainty and a high risk of the deal collapsing. Furthermore, the explicit 'going concern' warning indicates that the company may be forced to liquidate if the merger is not completed by the extended deadline. The increased general and administrative expenses, coupled with declining net income, reflect a deteriorating financial position. Given these compounding negative factors and the high probability of the SPAC failing to complete a value-accretive transaction, a strong sell recommendation is warranted.

Keywords

SPAC, Energy Transition, Business Combination, SEC Filing, 10-Q, Merger, e2Companies, Redemptions, Legal Dispute, Going Concern, Financial Results