SPAC Zombie Mergers: Nikola, whose shares collapsed 92%, buys battery pack maker Romeo whose shares collapsed 98%

Romeo, the supplier of the battery pack to Nikola, has reached the end of his runway. Nikola, who posted $0 revenue from truck sales, is trying hard to raise money.

Written by Wolf Richter for WOLF STREET.

Nikola, the legendary electric truck maker, which went public in June 2020 through a merger with SPAC – is legendary for all the wrong reasons, like the fraud charges settled with the Securities and Exchange Commission for $125 million last December and a stock that collapsed 92% of Today it announced it has entered into a deal to buy battery maker Romeo Power, which was brought to the public through a merger with SPAC in January 2021.

Romeo was running out of criticism. In its first-quarter earnings report — $11 million in revenue generating a net loss of $81 million — it warned that it may not be able to continue as a going concern. In June, she received a notice to delist her name from the New York Stock Exchange. Its shares collapsed 98%.

The announced purchase price this morning was $0.74 per share. romeo’s arrow [RMO] It closed at $0.70 today on the news. Nicholas said $0.74 per share, a 34% premium over Romeo’s closing price on July 29, represents an equity value of $144 million. Both Nicolas and Romeo were stars of the separate stock column.

As part of the deal, Nicolas agreed to provide $35 million in “liquidity support” to Romeo by closing the acquisition in order to “facilitate continuing operations.”

Romeo supplies Nikola with battery packs. In other words, the collapsed battery pack maker is part of Nikola’s highly reliable supply chain.

“The integrated commercial vehicle electrification platform is expected to lead to manufacturing excellence and annual cost savings of up to $350 million by 2026; reducing non-cell battery pack costs by 30-40% by the end of 2023,” Nicola said today. Nicholas has said a lot of things during his legendary life, including things that led to the fraud charges he settled with the Securities and Exchange Commission last December for $125 million.

Romeo said today that Nikola is its biggest customer — although Nikola has yet to report any revenue from truck sales until the first quarter.

In its first-quarter earnings report, Nikola still booked a $0 revenue from selling the trucks, even though it did deliver some test models. The only revenue it booked was $1.9 million from “services and more”. It incurred a net loss of $152 million, up from a net loss of $120 million a year earlier.

And this is the legendary stock of acquirer, Nicola, since the merger with SPAC:

Nikola is trying hard to collect some cash.

In May 2022, Nikola announced that funds advised by Antara Capital LP agreed to invest $200 million in Nikola through the purchase of convertible bonds, due in 2026, which carry an interest rate of 8.00% “if paid in cash”. Nikola can also pay interest in kind, and not in cash, but by issuing additional bonds, at an interest rate of 11.00%.

This criticism gives Nicolas some extra runway. But after losing $152 million in the first quarter, the runway is still not very long, especially since Nikola wants to ramp up production, which is a huge expense for each factory.

So she was trying to sell more shares to raise capital. But it needs shareholder approval to increase the number of outstanding shares and increase the capital. This was complicated. Ousted Nikola founder Trevor Milton had blocked the stock sale during a June shareholder meeting, and the meeting was postponed, then rescheduled, and rescheduled, with another date set for Tuesday. So we’ll see how it goes.

Competition: Big truck makers with huge resources.

Nikola’s competitors in the battery-powered electric truck market are old heavy-duty truck makers, including Mercedes, Mack, Volvo, Peterbilt, Navistar (international), MAN, and others who already know how to build trucks and have huge resources to build supply chains for electric vehicles and ramp up production. . They have dealers and service networks in place. They have well known respected brands, and many big fleet customers. And all of them are going out, or have already gone out, with electric trucks.

When Tesla started making EVs, there was virtually no competition in the form of other EV makers. Today, no startup has that luxury. Competitors are everywhere. Many of them are large companies with huge resources and easy access to capital markets, and truck makers have dedicated large amounts of capital to bringing their electric trucks to market. So good luck in this space, with a supply chain whose main link is Romeo.

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