Jamba in the Blender

Five managers who make up the brain trust of Services Acquisition together own about 3.19 million shares and will likely push for the company to register their stock for sale soon after the merger is complete. For the company's founders, the merger is a coup, because they each literally paid a few pennies for every share they purchased.

No one on the management team is poised to do better than Steven Berrard, the company's chairman and CEO, who owns 5% of its stock. Berrard, a co-founder of AutoNation(AN), a national used-car dealership, also is an investor in the private placement that's financing the merger.

In addition, Berrard's private equity fund, New River Capital Partners, was an adviser to Services Acquisition on the deal, which must still be approved by Services Acquisition shareholders.

There's more possible dilution. Investors also must keep an eye on 15 million warrants that were sold to investors in Services Acquisition.

A warrant is a special security that gives an owner the right to buy a share at a specified price.

In the case of Services Acquisition, a warrant owner is entitled to covert a warrant into a share of stock if he pays the company $6 for each share. That's good news for the company, because it means an additional source of cash. But it's bad news for existing shareholders because it means new, discounted stock entering the market.

With Services Acquisition's share price well above the exercise price, there's little doubt many holders will look to trade in their warrants following the merger. Indeed, it's one reason Services Acquisition warrants are trading so robustly these days. On Thursday, the warrants rose 34 cents, or 8.4%, to $4.39.

A spokeswoman for Jamba declined to discuss the warrants. Officials with Services Acquisition and Broadband Capital Management, the firm that served as underwriter on both the blank-check IPO and private placement, also declined to talk.

It's possible the proxy statement will outline a plan for dealing with the warrants, which might alleviate the potential dilution issue. But even some of the most ardent supporters of blank-check deals say "warrant overhang,'' is something every aftermarket investor in a blank check deal must be wary of.

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