Nikola, a maker of battery- and hydrogen-powered trucks, is acquiring battery supplier Romeo Power in an all-stock deal worth $144 million that it says will ensure stable access to lithium-ion packs as it ramps up electric semi production.
Boards of Phoenix-based Nikola and Romeo agreed to an offer of $0.74 per share, a 34% premium to Romeo’s July 29 closing price, Nikola CEO Mark Russell tells Forbes. Nikola will also provide Romeo with $35 million of funding to stabilize its operations until the deal closes—$15 million in senior secured notes and a battery pack delivery bonus worth up to $20 million. The deal still needs approval from shareholders and is expected to close later this year.
Nikola is Romeo’s main customer so “part of this is defensive, to make sure nothing disruptive happens here,” Russell said. “But the real motivation is strategic: we’re taking control of our battery destiny and bringing this in-house.”
Battery supplies are a priority for truck- and automakers pivoting from environmentally unfriendly fuels to electric propulsion amid a worsening climate crisis. The Biden Administration has already announced loan and grant programs intended to spur domestic battery production. Meanwhile, new energy legislation making its way through the Senate could provide significantly more federal funds to aid production of electric and hydrogen vehicles and incentives for consumers and commercial fleet operators to buy them.
“If what ends up going into law does include that purchase incentive and the production tax credit for the hydrogen, those are two things that are very strategic to us and to the industry,” Russell said.
Nikola also gets battery packs from Silicon Valley-based electric truck and bus maker Proterra and will continue to do so after the Romeo acquisition, Russell said. It’s adding 400 Romeo employees and the company’s Cypress operations will become Nikola’s Battery Center of Excellence.
“Part of this is defensive, to make sure nothing disruptive happens here.”
Founded in 2015 using battery technology developed by former SpaceX and Tesla engineers, Romeo has struggled to line up additional customers for its heavy-duty battery modules that it claims have better energy density and thermal stability than competing packs. After going public via a SPAC deal in late 2020, Romeo’s stock price has plunged from a high of $22.49 a share on December 1, 2020, to 55 cents at the close of trading on Friday.
Nikola hasn’t fared much better, also experiencing a precipitous drop in market cap triggered by fraud allegations against founder Trevor Milton in September 2020. Federal prosecutors have charged him with lying to investors about Nikola’s technology, and his trial over the matter is currently scheduled to start on September 12. Milton has denied any wrongdoing. Nikola settled with the Securities and Exchange Commission over the matter last year, agreeing to a $125 million fine.
The company estimates that integrating Romeo into its operations could reduce its battery pack costs by up to 40% by the end of next year and save it as much as $350 million by 2026.
“The deal better positions Nikola to adjust as battery technology changes,” Jeffrey Osbourne, a Cowen equity analyst, said in a research note. “We see the deal as an opportunistic and logical strategic fit as Nikola is Romeo’s largest customer.”
Under Russell, the company is moving forward with production of trucks at its Coolidge, Arizona plant, which started in April. And ahead of its second-quarter results announcement on August 4, it’s pushing shareholders to approve a stock issuance plan that would help raise additional funds to boost production and construction of hydrogen fuel stations.
Russell wouldn’t say if that measure has the investor backing it needs but did note that the Romeo Power acquisition doesn’t rely on it. “We’ve been working on this for a while, and we’ve made provisions so that we can do the transaction and have the stock available to us regardless of what happens with the proxy vote,” he said.
Nikola shares rose 7.9% in Nasdaq trading to $6.71, while Romeo jumped 27% to 69.8 cents at 12:16 p.m. New York time.