Focus On PIF, Not PIPE To See Where Lucid Group Stock Is Headed

The last time I wrote about Lucid Group (NASDAQ:LCID) in August, I discussed the effect a lawsuit filed by Dentons LLP could have on the future direction of LCID stock. I wasn’t confident about the outcome. 

The websites for Lucid Motors and the Public Investment Fund.
Source: Jarretera /

In this latest commentary, I’d like to discuss a post I saw on Reddit’s r/WallStreetBets channel from August that could be even more troubling than a large law firm suing the luxury electric vehicle (EV) startup for services rendered but unpaid. 

The company and its future share price are unquestionably tied to its majority owner. So what it does in the months ahead is all that should matter to shareholders. 

Here’s why. 

LCID Stock Investors Should Forget About PIPE Shareholders

Someone named u/ShortDetector wrote an interesting post in August about Lucid’s PIPE (private investment in public equities) shareholders’ then-upcoming lockup expiry. I’ll get to that in a moment. 

Anyway, the institutional investors that bought into Lucid’s $2.5 billion PIPE acquired 166.7 million shares at $15 each. This was considerably higher than original SPAC Churchill Capital Corp IV’s July 2020 IPO price of $10, the price at which most special purpose acquisition companies sell shares, but much less than its $57 share price when the Lucid Motors/Churchill Capital merger was announced in February. 

The lockup for these PIPE shares was Sept. 1. LCID stock lost more than 10% on the news. However, the shares have since recovered most of those losses. LCID stock regained most of that in the intervening days. 

Okay, now back to u/ShortDetector’s post.

They made the following observations why the PIPE shareholders wouldn’t sell on the lockup expiry: 

  • The PIPE was oversubscribed. The seven institutions that got to buy PIPE shares at $15 were lucky to be invited to the party. In addition, as I mentioned above, those institutions were getting shares at almost 75% off. Who could resist?
  • Saudi Arabia’s Public Investment Fund (PIF), already a large shareholder in Lucid before the PIPE — The Kingdom of Saudi Arabia founded PIF in 1971 — bought $200 million with the other six buying the remaining $2.3 billion. It was a show of confidence.
  • Lucid CEO Peter Rawlinson and the head of PIF said in February while discussing the merger that the PIPE investors were in it for the long term. So, we’re not talking about a few months. More likely, years. 
  • The six institutional investors handpicked by PIF wouldn’t want to hurt the relationship with one of the world’s largest sovereign wealth funds by selling at their first opportunity. The loss of investment advisory and management fees would be too great to rock the boat.  

Of these four points, I’m not sure which is the most compelling. So let me try to handicap them.

From Strongest To Weakest Case

I don’t think there’s any question that the first point is the strongest. SPACs had come off a massive year in 2020. The liftoff post-merger announcement for many SPACs last year was decent, if not spectacular. 

So, the ability to buy into a growth story at 75% off is every investor’s dream. Even if the share price fell by 50% — $57 to $28.50 — they would be way ahead of the game. 

However, I do have a problem with the rationale for BlackRock (NYSE:BLK) hanging tough.

“Let’s assume Blackrock, as one of the seven PIPE investors, invested $300M at $15 and by lockup expiration date the price is $45. They will have $600M gain. This gain looks huge for retail investors, but it is not huge enough for a company at the size of Blackrock,” u/ShortDetector wrote.

The author does go on to explain the situations under which it wouldn’t make sense to sell immediately after lockup expiry. 

At the end of the day, BlackRock is a steward of other people’s capital. Up 33% on their investment despite a 65% decline in Lucid’s share price is an infrequent occurrence for investment managers. The temptation to take the money and run is real.

As for the weakest point, I would have to say the fourth is the least compelling. 

I feel this is the case because the BlackRocks of the world have many big clients, including many other large sovereign wealth funds. Sure, fee generation is important, but if PIF is in this for the long haul, it won’t give a lick that one or more of its PIPE investors are moving on. 

Lucid Motors needed the money. BlackRock and the five others provided it. End of story. 

The Bottom Line

Saudi Arabia’s PIF originally invested $1 billion into Lucid in 2018. In total, it’s estimated to have invested $2.9 billion. It currently owns 63% of Lucid’s shares. So even at less than $20 a share, it’s made more than $17 billion on its investment. 

Not bad for a three-year investment.

So, PIF must hold for six months from the completion of the merger on Aug. 12. That’s Feb. 12, 2021, or thereabouts. Should LCID stock move higher, the profits would be even greater to PIF, making it very tempting to cut and run.

Ironically, given Saudi Arabia’s poor reputation for the rule of law — think Jamal Khashoggi — the future trajectory of LCID stock is not what the PIPE investors do but what PIF does come February. 

Granted, you can’t just sell off a $20 billion-plus public holding, in the same manner you would a used car on Kijiji, but the blowback from an exit decision could be brutal.

On the flip side, the size of its holding means PIF probably will be in this for the long haul because it would take several years to wind down its position.

If you’re an LCID shareholder, a PIPE’s exit is almost meaningless compared to PIF leaving the building. If that happens, your investment would be toast. 

On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.

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