recently announced a blockbuster deal, shaking up both the car and truck industries. The details were supposed to be nailed down by today, but negotiations are ongoing, according to both companies, leaving investors to wonder what comes next.
For the deal to go forward, Nikola (ticker: NKLA) might have to offer GM (GM) more stock.
The deal, announced Sept. 8, gives General Motors an 11% stake in Nikola in exchange for GM supplying parts and providing engineering and manufacturing support. Wall Street said the deal validated Nikola’s business model. It also helped change the perception of GM’s battery and fuel-cell technology platforms. After the deal, Morgan Stanley analyst Adam Jonas wondered in a research report if GM has a “stable of potential unicorns,” referring to the name given to privately held billion-dollar tech start-ups.
But a short seller’s report, published Sept. 10, hit Nikola stock hard. Shares are down about 58% since Hindenburg Research alleged Nikola founder Trevor Milton—who has since resigned from the company—misled investors about his company’s technological prowess, among other things.
Nikola denies the claims. But the stock is still down, lowering the payoff General Motors gets from the deal. Before the announcement, 11% of Nikola was worth roughly $1.5 billion. Today, it’s worth about $750 million.
“Our transaction with Nikola has not closed,” a GM spokesman told Barron’s in an emailed statement Wednesday morning. “We are continuing our discussions with Nikola and will provide further updates when appropriate or required.” Nikola relayed the same sentiment in a separate statement.
The easiest thing for Nikola to do would be to give up more stock, though that might chafe existing shareholders. But given what options markets are implying—traders expect Nikola stock to swing about 35%, up or down, by mid-November—shareholders might be more forgiving if it means lower volatility and reclaiming some of their recent losses.
GM stock has taken a hit because of Nikola’s woes. Shares are down 10% since the Hindenburg report was published. The
Dow Jones Industrial Average
for comparison, are down 0.3% and 1.9%, respectively. Stock in
(F), a GM peer, is down 3.9%.
The deal, for GM, was initially praised by Wall Street. GM was getting 11% while giving up no cash. But the Hindenburg charges raised questions about the auto maker’s due-diligence process.
Wall Street has been largely mum on what it expects GM to do next. J.P. Morgan analyst Paul Coster wrote on Sept. 16 that the company hadn’t lost momentum with its customer base after the Hindenburg report was released. RBC analyst Joseph Spak wrote on Sept. 22 that Trevor Milton’s departure on Sept. 21 was “necessary and the right long term decision,” but didn’t handicap the GM deal going forward.
Nikola, for its part, released a statement Wednesday outlining its strategic vision, while also saying it might delay its planned Nikola World product launch event due to Covid-19.
The Nikola World news isn’t hitting the stock. But figuring out what exactly is driving Nikola stock on a given day has been difficult lately. Shares are up 12.5%, at $20.12, in recent trading. GM stock is gaining 2.1%, at $29.33.
That seems to imply the market believes the deal is on, even if the terms are recut.
Write to Al Root at [email protected]