Manufacturer of electric trucks Nicholas (NASDAQ: NKLA) attempted to obtain shareholder approval to increase the number of its shares to give it more financial flexibility for potential capital investments. After announcing one of these investments today, shares of Nikola surged. As of 1:15 p.m. ET, shares of Nikola were up 2.1%.
Nikola announced the acquisition of an electric vehicle (EV) battery supplier Power of Romeo for a valuation of $144 million. Nikola is Romeo’s biggest customer, which will now give him control of a significant part of his supply chain.
While shares of Nikola and Romeo have struggled since they began to be publicly traded through mergers with special purpose acquisition companies (SPACs), shares of Romeo Power have had a road much harder this year. While Nikola shares are down about 35% year-to-date, Romeo Power shares are down more than 80%, even after rising 24% on today’s news.
The all-stock trade represents a roughly 34% premium to Romeo’s closing price last Friday. The deal appears to provide Romeo with a lifeline and secures an important supply item for Nikola. Romeo said it lost just over $80 million in the first quarter of 2022 on revenue of $11.6 million, leaving him with just $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 whether Nikola is allowed to increase its number of outstanding shares. of 200 million shares. The company tried to get approval several times, but had to overcome a vote against the proposal by former executive chairman Trevor Milton.
An increase in the number of shares would potentially dilute existing shareholders, but give the company more financial flexibility. Today’s acquisition announcement appears to have received shareholder approval, and by tomorrow the outcome of the proposal should also be known.
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Howard Smith holds positions within Nikola Corporation. The Motley Fool has no position in the stocks mentioned. The Motley Fool has a disclosure policy.
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