Lucid Motors Says Its Merging with CCIV at a Combined $24 Billion Valuation

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Investors pulled back on CCIV shares following the announcement.

Yesterday, Lucid Motors finally announced its official reverse merger with Churchill Capital Corp. IV (CCIV), a special acquisition company (SPAC). Investors had been anticipating the deal since Bloomberg reported in January that the two companies were in talks to merge. Let’s take a quick look at some of the biggest highlights from the company’s announcement.

Lucid said in the press release that the two companies are combining at a transaction equity value of $11.75 billion. The transaction includes a $2.1 billion cash contribution that Lucid will receive from Churchill, in addition to a $2.5 billion fully committed private investment in public equity (PIPE), in which the private investors will have a lock-up period “well beyond closing.”

The company said this will be the largest ever SPAC-related common stock PIPE.

More importantly, the company priced the PIPE at $15 per share, which is up from the $10 per share that CCIV was initially listed at. SPACs are typically listed at $10 per share when they first go public. Lucid said that this gives the company an implied pro forma equity value of $24 billion.

The $24 Billion Valuation Already Looks Low

Here’s the thing, investors have been pushing up CCIV’s share price far higher than its original $10 per share over the past few weeks. On the day of the announcement, Feb 22., CCIV closed at $57.37. Once the companies announced the reverse merger, CCIV’s stock tumbled 33% in after-hours trading.

We’ll get to why the share price fell in just a minute, but for now, let’s look at what CCIV’s current share price means for Lucid’s valuation. With 1.6 billion shares outstanding (167 million for PIPE shareholders and 1.175 billion for existing shareholders) now trading at about $38 per share (as of this writing), the combined companies’ valuation is an implied $60.8 billion.

What’s a little wild about this valuation is that it puts Lucid Motors above Ford’s market capitalization of $46 billion and closing in on General Motors’ $75 billion. Just a reminder: Lucid Motors hasn’t sold a single commercial vehicle yet and won’t do so until the second quarter of this year.

Lucid took the SPAC route to go public because this avenue is cheaper than using an IPO and, theoretically, allows a company to more-correctly price it’s public offering without the initial share price spike that sometimes happens when companies IPO. That initial pop seems good and usually makes headlines, but it also means that companies didn’t price their IPO correctly and essentially left money on the table.

Considering that CCIV’s shares are priced far above the $15 per share in the announcement, even after the recent drop, it appears that Lucid may have been able to raise more money through an IPO — though it still would have cost Lucid more money to do so and would have taken longer to close.

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Why Did CCIV Shares Drop Sharply After the Announcement?

Determining why a stock drops (or pops) isn’t always an exact science, but there may be one or two reasons in this case.

First, it’s likely that some short-term investors purchased CCIV shares solely for the purpose of riding the SPACs share price run-up before the merger, and then cashed out once the deal was announced. If enough shareholders go that route then that could have caused CCIV’s stock to take a hit.

Second, prior to the announcement of definitive purchase agreements, there are many unknowns when buying a SPAC such as CCIV. As of yesterday, CCIV stock was trading for close to $15 billion. However, it’s important to remember that final details such as what percentage of Lucid Motors ownership CCIV accounts for are not fully known until the definitive agreement is announced.

So while it had widely been reported Lucid would raise at a transactional value of $12 billion, its inclusion of PIPE financing raised the pro forma valuation to $24 billion. It may be that given the final changes to valuation and the total amount of ownership CCIV shareholders possess of Lucid, a drop simply moves the implied market cap for the entire company down to where investors expected it to be before the final terms were announced.

If that’s all confusing — I’m sorry, we’re trying our best! — just keep in mind that SPACs are a field that is rapidly hitting scale and many investors are not used to. It can be difficult to assess what the true market capitalization is of a company like Lucid Motors during this process. However, once the final terms are announced, the market capitalization of a Lucid Motors becomes clear, and the market can reset expectations.

Either way, it’s likely that we could see CCIV’s share price experience more volatility, particularly before the official deal between Churchill and Lucid closes in the second quarter of this year.

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