SPAC zombie mergers: Nikola, whose shares crashed 92%, buys battery maker Romeo whose shares crashed 98%

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Roméo, Nikola’s battery supplier, has reached the end of his trail. Nikola, who reported $0 in revenue from truck sales, is desperately trying to raise funds.

By Wolf Richter for WOLF STREET.

Legendary electric truck maker Nikola, which went public in June 2020 via a merger with a SPAC — legendary for all the wrong reasons, such as the fraud charges it settled with the SEC for $125 million in December latest and a stock that has collapsed 92% of its hype – announced today that it has reached an agreement to acquire battery maker Romeo Power, which went public via a merger with a SPAC in January 2021.

Romeo was short of money. In its first-quarter earnings report — $11 million in revenue resulting in a net loss of $81 million — it warned it might not be able to continue in business. In June, he received a delisting notice from the New York Stock Exchange. Its shares have collapsed by 98%.

The purchase price announced this morning was $0.74 per share. Romeo’s slices [RMO] closed at $0.70 today on the news. That $0.74 per share, a 34% premium to Romeo’s closing price on July 29, represented a net worth of $144 million, Nikola said. Both Nikola and Romeo were stars in my Implosed Stocks column.

As part of the deal, Nikola agreed to provide $35 million of “liquidity support” to Romeo until the acquisition closes to “facilitate continued operations.”

Romeo provides batteries to Nikola. In other words, the collapsing battery manufacturer is part of Nikola’s highly reliable supply chain.

“Integrated Commercial Vehicle Electrification Platform Expected to Drive Manufacturing Excellence and Annual Cost Savings of Up to $350 Million by 2026; reduce non-cell battery costs by 30-40% by the end of 2023,” Nikola said today. Nikola has said a lot during his storied life, including things that led to fraud charges he settled with the SEC last December for $125 million.

Romeo said today that Nikola is his biggest customer – although Nikola still hasn’t reported revenue from truck sales until the first quarter.

In its first-quarter earnings report, Nikola still reported $0 revenue from truck sales, although it gave away some test models. The only revenue recorded was $1.9 million from “Service and others”. And it posted a net loss of $152 million, compared to a net loss of $120 million a year ago.

And here is the mythical title of the acquirer, Nikola, since the merger with a SPAC:

Nikola tries desperately to collect some money.

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

This money gives Nikola an extra lead. But after the loss of $152 million in the first quarter, the trail is still not very long, especially since Nikola wants to speed up production, which represents a huge loss of money for each manufacturer.

So he tried to sell more shares to raise capital. But it needs shareholder approval to increase the number of shares outstanding and raise capital. It was complicated. Ousted Nikola founder Trevor Milton had blocked the sale of shares at the shareholders’ meeting in June, and the meeting was adjourned, then rescheduled and rescheduled, with another date set for Tuesday. So we’ll see how it goes.

Competition: big truck manufacturers with huge resources.

Nikola’s competitors in the battery electric truck market are older heavy-duty truck manufacturers including Mercedes, Mack, Volvo, Peterbilt, Navistar (International), MAN and others who actually know how to build trucks and have huge resources to build electric vehicle supply chains. and speed up production. They have resellers and service networks in place. They have well known respected brands and many large fleet customers. And they are all going out, or have already been out, with electric trucks.

When Tesla started making electric vehicles, there was no competition in the form of other electric vehicle manufacturers. Today, no startup has this luxury. Competitors are everywhere. Many of them are large companies with huge resources and easy access to capital markets, and these truck manufacturers have poured significant capital into bringing their electric trucks to market. So good luck entering this space, with a supply chain whose key link is Romeo.

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