Nikola Buys Romeo Power In An All-Stock Deal Worth $144 Million

Electric heavy truck maker Nikola announced on August 1 that it entered a $144 million deal to acquire battery pack supplier Romeo Power. With the agreement, Nikola will offer Romeo $35 million in interim funding to continue its operations until the transaction is finalized. The company also believes the acquisition could save up to $350 million in 2026.

California-based Romeo is a company that builds battery modules and packs for large commercial electric vehicles, using other companies’ lithium-ion battery cells. 

Nikola started shipping its electric semi-trucks earlier this year and expects to ship between 300 and 500 trucks in 2022. The company has been Romeo’s largest customer.

Nikola Buys Romeo Power: The Deal

Nikola CEO Mark Russel said the transaction would help the company as it accelerates the electrification platform. 

“Through our strong relationship with Romeo, we are confident in our ability to successfully integrate and achieve the expected strategic and financial benefits of this acquisition,” Russel explained. 

The deal is a lifeline for Romeo. Like Nikola, it is one of many electric vehicle (EV) companies to have gone public via mergers with special purpose acquisition companies or SPAC. Romeo went public through a SPAC merger in late 2020, in a deal that valued the combined company at $900 million.

However, Romeo had only $66.8 million in assets remaining as of the end of the first quarter after losing more than $250 million. Recently, its shares have been trading below $1. With interest rates rising, too, Romeo may run out of choices to continue its operations. 

Nikola has been working on getting shareholder approval for a measure to increase its total number of shares outstanding. This measure has been blocked by its former CEO, Trevor Milton, who was ousted following allegations that he misrepresented details of Nikola’s technology and order book to investors. Nikola plans to reconvene its shareholder meeting on Tuesday afternoon to announce the current vote totals.

Nikola said it has enough unissued stock to complete the acquisition of Romeo, even if the proposal to increase its outstanding shares fails to pass.

What is Romeo Power?

Romeo was founded in 2015 using the battery technology developed by former engineers at Tesla and SpaceX. The firm has struggled to line up additional customers for its heavy-duty battery modules that it claims to have better energy density and thermal stability than its competitors. 

After going public in 2020, Romeo’s stock price has experienced a severe drop from a high of $22.49 per share on December 1, 2020, to 55 cents at the close of trading by the end of July 2022.

The Agreement Helps Nikola to Cope as Battery Technology Evolves

Jeffrey Osbourne, a Cowen equity analyst said the deal is a timely, logical, and strategic move as Nikola is Romeo’s largest customer. Meanwhile, under Russell’s leadership, Nikola is moving forward with the production of trucks, which started in April 2022. Before its second-quarter results announcement on August 4, the company asked shareholders to approve a stock issuance plan. This will help raise additional funds to boost the production and construction of hydrogen fuel stations.

The Nikola buys Romeo Power deal values Romeo at 74 cents per share, a 34 percent premium to Romeo’s closing price Friday. Romeo’s shares closed up about 27 percent on Monday (August 1), while Nikola’s closed up almost 8 percent. 

For other stories and news, read more here at Owner’s Mag!