Insights

Here’s What Made Nikola Shares Pop Today

What happened

Electric heavy truck maker Nikola (NASDAQ: NKLA) has been trying to gain shareholder approval to increase its share count to give it more financial flexibility for potential capital investments. After it announced one of those investments today, Nikola’s shares jumped. As of 1:15 p.m. ET, Nikola shares were higher by 2.1%. 

So what

Nikola announced it will acquire electric vehicle (EV) battery pack supplier Romeo Power for a valuation of $144 million. Nikola is Romeo’s biggest customer, and this will now give Nikola control over an important part of its supply chain. 

Image source: Nikola.

Now what

While both Nikola and Romeo stocks have struggled since they began trading publicly through mergers with special purpose acquisition companies (SPACs), Romeo Power stock has had a much rougher road this year. While Nikola shares have dropped about 35% year to date, Romeo Power stock has plummeted more than 80%, even after a 24% pop on today’s news. 

The all-stock transaction represents a premium of about 34% compared to Romeo’s closing price last Friday. The deal seems to provide Romeo a lifeline, and secures an important supply component for Nikola. Romeo reported it lost just over $80 million in the first quarter of 2022 on revenue of $11.6 million, leaving it with only $66.9 million in cash, cash equivalents, and investments. 

Nikola says the acquisition will result in annual cost savings of up to $350 million by 2026. The announcement coincides with another round of shareholder votes to decide if Nikola is approved to raise its outstanding share count by 200 million shares. The company has attempted to gain approval several times, but has had to overcome a vote against the proposal by former executive chairman Trevor Milton.

An increase in the share count would potentially dilute existing shareholders, but would give the company more financial flexibility. Today’s acquisition announcement seems to have gained approval from shareholders, and by tomorrow the outcome of the proposal should also be known. 

Howard Smith has positions in Nikola Corporation. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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