Shares of Nikola (NASDAQ:NKLA) are in the spotlight after the company announced that it will acquire Romeo Power (NYSE:RMO) for $144 million in an all-stock transaction. NKLA stock is trending slightly upward on the news today.
The purchase price values RMO stock at 74 cents per share, a 34% premium to the stock’s closing price last Friday. In the meantime, Nikola will provide Romeo with up to $35 million to help continue its operations until the transaction closes. The $35 million will include $15 million in senior secured notes and up to $20 million for a pack delivery incentive. The incentive is a temporary price increase for each pack delivered.
Romeo operates as a lithium-ion battery module and pack builder for large-sized electric vehicles (EVs). Since Nikola is already the company’s largest customer, it expects “significant operational improvement and cost reduction in battery pack production” from the acquisition. In addition, Nikola will be able to take advantage of Romeo’s battery management system (BMS).
Nikola CEO Mark Russell added:
“With control over the essential battery pack technologies and manufacturing process, we believe we will be able to accelerate the development of our electrification platform and better serve our customers.”
NKLA Stock: Nikola Acquires Romeo Power
Romeo will help Nikola further develop its integrated commercial vehicle electriﬁcation platform. As a result, this synergy is expected to reduce $350 million of annual costs by 2026 and reduce non-cell related battery pack costs by 30% t0 40% by the end of 2023. Furthermore, Romeo’s technology will help Nikola increase battery range and charge rates.
Upon closing, RMO stockholders will receive 0.1186 of a share of NKLA for each share of RMO owned. Nikola expects the transaction to close by October, subject to certain closing conditions. The EV company will also form a new subsidiary that will merge with Romeo.
Romeo became publicly traded after initiating a special purpose acquisition company (SPAC) merger in 2020. At the time, the combined company traded at a valuation of $900 million. However, the business has gone downhill since then. During the first quarter, the former SPAC reported a net loss of $81.11 million, while only having cash on hand of $66.9 million.
Nikola has stated that it has enough unissued stock to fully complete the acquisition. Shares of RMO are up about 25% on the news.
On the date of publication, Eddie Pan did not hold (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 InvestorPlace.com Publishing Guidelines.