Nikola Corp. is acquiring struggling startup Romeo Power Inc. in a $144 million all-stock deal that Nikola says will assure its supply of battery packs critical to assembling electric trucks.
The transaction exchange ratio implies Romeo’s shares are worth 74 cents each, a 34% premium to its closing price Friday of 55 cents. Romeo shareholders get a 4.5% pro forma ownership of Nikola. The boards of both companies have approved the deal.
The deal potentially preserves up to 400 jobs at Romeo.
“In the short run, we need everybody there,” Mark Russell, Nikola CEO, told . “We need as many batteries as they can produce. It can be a challenge for them to keep up with us. We need all the help we can get there.”
Nikola expects to save $350 million on battery costs by 2026 and reduce non-cell-related battery pack costs by 30%-40% by the end of 2023 because of the acquisition.
Nikola is providing Romeo $35 million to keep operating until the deal closes, expected at the end of October.
“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. It is exciting to see Romeo joining the Nikola family,” Robert Mancini, Romeo chairman, said in a press release.
SPAC shakeout
It is the latest evidence of a shakeout of young companies that went public during a frenzy of mergers with special purpose acquisition companies in 2020 and 2021. Shell companies created by blank check investors targeted startup companies that had little or no revenue and were years away from making money.
“Only time will tell if it’s the beginning of something bigger in terms of a wave or something like that,” Russell said. “In a space where a bunch of startups got going, some of them are not going to make it. It’s inevitable that there’s some consolidation as things go along.”
“We included the need for shares here in our overall planning,” Russell said. “And we know we can get it done regardless of any other factors.”
Battery worries
Nikola was concerned for months about Romeo’s ability to keep up with its need for battery packs, designed by Nikola and manufactured by Romeo.
“For some time, we have thought we needed more control of our battery destiny,” Russell said. “Part of it is defensive, making sure you have security of supply. But also strategically. Batteries are in a constant state of flux. There’s constant improvements, both at the cell level and at the module and pack level.”
“We’re not going to be a merchant of batteries,” Russell said. “This in the long run will become our in-house capability.
Romeo Power’s new battery-manufacturing plant in Cypress, California, will become Nikola’s in-house battery operation as part of its $148 million all-stock acquisition. (Photo: Nikola)
“You get a brand-new facility that’s got new equipment in it, and you get 400 excellent, passionate people who are really experts in batteries. That’s what we’re paying for.”
Sorting out the details
“[Romeo] will certainly fulfill whatever commitments they’ve already made,” Russell said. “We won’t intentionally interfere, subject to any future negotiations or changes in circumstance.”
“That’s been the part of the deal that you learn last because it’s competitively sensitive,” Russell said. “We don’t know everything about those deals at this point.”
It is public knowledge, however, that Republic Services, a major manufacturer of refuse vehicles, is an investor in Romeo. Timothy Stuart, Republic COO, is one of eight Romeo directors.
Romeo’s journey
Founded in 2016, Romeo may have been better off before its SPAC with RMG Acquisition Corp. that resulted in Romeo receiving $384 million in proceeds when the merger closed at the end of 2020.
Romeo stock once touched $38 a share before beginning a precipitous fall that coincided with greater SPAC scrutiny by the Securities and Exchange Commission.
CEO Lionel Selwood was ousted in August 2021, replaced by former Bloom Energy COO Susan Brennan.
