Gaining control over a key part of its supply chain, Nikola Corp. (NKLA, Financial) announced on Monday it is buying battery pack provider Romeo Power Inc. (RMO, Financial) in a deal valued at $144 million.
According to the terms of the all-stock transaction, shareholders of Romeo Power will receive 0.1186 of a share of Nikola common stock for each share held, representing 4.5% pro forma ownership of the Phoenix-based maker of heavy-duty electric trucks.
The offer values Romeo Power at 74 cents per share, which is a 34% premium to its closing price on Friday.
Additionally, Nikola will provide the Cypress, California-based company, which specializes in building battery modules and packs for large electric commercial vehicles, with $35 million in interim funding to keep its operations running until the deal closes.
The merger is coming at a good time for Romeo, which is in desperate need of a lifeline to stay afloat. Like many other EV companies, Nikola and Romeo both went public via special purpose acquisition companies. Romeo began trading on Dec. 30, 2020 with a value of $900 million.
However, after racking up more than $250 million in losses, the company recorded just $66.8 million in cash and equivalents as of the end of the first quarter. CNBC also reported its shares have been trading below $1 in recent weeks, suggesting its situation may become more dire as interest rates rise.
According to Robert Mancini, Romeo Power’s chairman of the board of directors, due to Nikola serving as “a cornerstone of [its] development and growth,” the deal is a “natural evolution” of the two companies’ relationship.
“Our products provide critical energy density important to heavy-duty vehicles, combined with safety performance and battery management software,” he added. “Following an extensive review of alternatives, we firmly believe that this combination offers the best opportunity for Romeo shareholders to participate in the ongoing value creation at a larger scale, stronger combined company.”
As Romeo Power’s largest customer, the combination will be greatly beneficial for Nikola as well. By controlling the battery manufacturing process, the company expects to generate up to $350 million in cost savings annually by 2026, while simultaneously accelerating the development of its electrification program.
In a statement, Nikola CEO Mark Russell said the integration of Romeo will “further leverage their technological capabilities as the landscape for vehicle electrification grows more sophisticated.”
“Given our strong relationship with Romeo and ongoing collaboration, we are confident in our ability to successfully integrate and deliver the many expected strategic and financial benefits of this acquisition,” he said. “We look forward to creating a zero-emissions future together.”
Pending regulatory approval, the deal is expected to close by the end of October.
Following the announcement, shares of Romeo Power climbed over 25% to trade around 70 cents, while Nikola’s shares rose 3.78% to $6.46.
Both stocks have recorded steep losses year to date.
As of March 31, Philippe Laffont (Trades, Portfolio) is Nikola’s sole guru investor with a 1.75% stake. Similarly, Jim Simons (Trades, Portfolio)’ Renaissance Technologies was the only guru invested in Romeo Power at the end of the first quarter with 4.31% of its outstanding shares.
