Electric trucks manufacturer Nikola is set to acquire Romeo Power
Manufacturer of electric heavy trucks Nikola announced
on Monday that it has reached a $144 million purchase agreement to acquire
battery pack provider Romeo Power, granting the company control over a
vital link in its supply chain.
Romeo is valued at 74 cents per share in the all-stock
transaction, which represents a 34 percent premium over Friday's closing price.
Following the announcement of the news, Romeo's shares increased by roughly 23%
to 68 cents in premarket trade.
Romeo will get $35 million in interim capital from
Nikola as part of the agreement in order to run its business until the
transaction is finalized, according to the firms. According to Nikola, the
acquisition might result in savings of up to $350 million over the following
four years.
The projected exchange ratio entails a value of $0.74
per Romeo share, which is around a 34% premium to Romeo's closing share price
on July 29, 2022, and valuations all of Romeo's equity at about $144 million.
Romeo's contribution of technical expertise for
batteries and battery management systems (BMS) is also anticipated to promote
faster product development and better performance for customers of Nikola.
The transaction, which is slated to close by the end
of October 2022, was approved by the boards of directors of both firms.
A recently established Nikola subsidiary will be
merged with Romeo after the transaction is completed.
Romeo will be able to continue operating through the
close with the help of the $35 million in interim capital that Nikola has
agreed to give them.
Romeo, a company established in California,
specialized in producing lithium-ion battery modules and packs for massive
electrified commercial vehicles. The biggest client of Romeo has been Nikola,
which started exporting its electric semi-trucks early this year and
anticipates shipping between 300 and 500 trucks next year.
The agreement, according to Nikola CEO Mark Russell,
will allow the company to hasten the production of its electrification system.
"Romeo has been a valued supplier to Nikola, and
we are excited to further leverage their technological capabilities as the
landscape for vehicle electrification grows more sophisticated. With control
over the essential battery pack technologies and manufacturing process, we
believe we will be able to accelerate the development of our electrification
platform and better serve our customers," said Russel.
The former CEO Trevor Milton, who was fired after
being accused of misleading investors about Nikola's technology and order book, has
been preventing the company from obtaining shareholder approval for the
proposal to increase the total number of shares outstanding. In order to
provide the most recent vote totals, Nikola intends to call its shareholder
meeting back on Tuesday afternoon.
In a Monday filing, Nikola stated that even if
the request to raise its shares outstanding is rejected, it has sufficient
unissued stock to conclude the takeover of Romeo.
Romeo, like Nikola, is among the numerous EV firms
that have gone public through mergers with special-purpose
acquisition companies (SPACs), thus the agreement offers a rescue for
Romeo. In late 2020, the battery pack maker went public through a SPAC
merger, valuing the combined business at $900 million.
But after suffering almost $250 million in losses,
Romeo was left with only $66.8 million in cash and other assets at the
conclusion of the first quarter. Romeo may have been out of choices to survive,
with its shares falling below $1 in recent weeks and financing rates climbing.
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