Today is a rough day for Hyliion (NYSE:HYLN). Shares of the electric vehicle company are slipping more than 16% thanks to news the company plans to redeem public warrants. But what does that mean? And what do you need to know about HYLN stock here?
To start, investors should get a little refresher on the warrants situation. Essentially, a company issues warrants, giving holders the right to purchase shares of the company stock at a specified price at a specified time. That is exactly what happened with Hyliion way back in February 2019.
At the time, Hyliion was still a private company. But special purpose acquisition company Tortoise Acquisition was launching its initial public offering on the New York Stock Exchange. When Tortoise came public, it offered 22.5 million units at a price of $10 each. Each of those units came with one share of common stock, and half of a warrant to purchase the common stock at $11.50.
Then, the love story between Hyliion and Tortoise Acquisition started to unfold, ultimately culminating when HYLN stock debuted on the NYSE in October. However, the public warrants story did not end.
And importantly, that is where the massive move in HYLN stock comes from today. When Hyliion closed its merger with Tortoise Acquisition, approximately 12.5 million warrants were outstanding. Holders had to wait 30 days after the merger closed, and then a five-year window to purchase common stock at $11.50 per share started. However, thanks to a few conditions in the fine print, that five-year window is ending early.
Today, Hyliion announced that holders of public warrants have until Dec. 30, 2020 to exercise those warrants. This could bring in $144 million in net proceeds to Hyliion. And if those holders do not all exercise their warrants, Hyliion can redeem them for 1 cent each.
What Does This Mean for HYLN Stock?
So why is HYLN stock taking such a beating on Monday? Essentially, investors see that a company is redeeming its public warrants and they start to panic. This is because oftentimes, such a move is a sign that a company is in desperate need of some cash. As InvestorPlace Markets Analyst Tom Yeung wrote recently, a similar funding move by Workhorse (NASDAQ:WKHS) could be seen as a major red flag.
Importantly, Hyliion is clear that the redemption of its public warrants will bring it as much as $144 million. As the company adjusts to life in the public markets and ramps up its zero-emissions solutions for Class 8 commercial transportation vehicles, it may just need some money.
However, there is another way to look at this. Back in February 2019, it was hard to predict just how quickly HYLN stock would soar. Although HYLN has had a volatile life, shares are still up 100% for the year to date. This is also part of the warrant redemption story. Because shares have held steady above $18, the company is entitled to redeem its warrants early. If the company is confident that it will keep climbing higher, this could be a smart move.
Keep a close eye on HLYN stock to see how this situation unfolds. When the initial panic wears off, perhaps an interesting EV opportunity will appear.
On the date of publication, Sarah Smith did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Sarah Smith is a Web Content Producer with InvestorPlace.com.