Nikola (NKLA) Should Opt for an Early Exercise of SPAC Warrants and End the Uncertainty That Is Crushing the Stock Price

Nikola (NKLA) Should Opt for an Early on Exercise of SPAC Warrants and Stop the Uncertainty That Is Burdensome the Stock Price

Nikola Corporation (NASDAQ:NKLA) rode a wave of investor euphoria in June as it was able to successfully peddle its ethereal business plans to retail investors. Notwithstanding, the stock's recent functioning has been nix short of a disaster as reality seems to be catching upwardly with fantasy.

Every bit an illustration of the carnage, since the 01st of July, Nikola shares have tumbled by a whopping forty percent, closing at $xl.23 on Tuesday. In fact, it was the 17 per centum plunge yesterday that prompted Trevor Milton, the Executive Chairman of Nikola Corporation, to jump into the fray with a commentary on the twenty-four hour period's price action. In a now-deleted tweet, Mr. Milton claimed:

We noted in our post on Monday that two factors seem to be weighing on Nikola'due south stock price. The first dampener is the somewhat underwhelming nature of the Annoy electrical pickup truck's initial reservation numbers, with Nikola tracking approximately i,500 reservations per mean solar day. For comparison, Tesla's Cybertruck garnered 146,000 reservations inside 48 hours of the facility'southward debut.

However, a much more severe dampener is the impending sale of shares held by Nikola'south Piping investors and the dubiousness surrounding the timeline of this liquidation.

Before delving into the details, let's examine what the terms SPAC and PIPE mean. A Special Purpose Acquisition Company (SPAC) is formed for the sole purpose of raising uppercase through an IPO and and so to channel these IPO proceeds into acquiring an existing company. If the SPAC fails to acquire its target within the stipulated timeframe, the money is returned to the investors and the entity is disbanded. In early June, Nikola Motors officially became a wholly-owned subsidiary of VectoIQ (VTIQ), a SPAC. As a effect of this conquering, Nikola debuted on the NASDAQ under a new symbol – NKLA. A Individual Investment in Public Equity (Pipe), on the other mitt, is the purchase of shares of publicly traded stock at a discount to the current marketplace price by institutional investors. Nikola deployed this Pipe facility to learn an infusion of $700 million in fresh liquidity from investors, including Fidelity Investments, P. Schoenfeld Asset Management, etc. In render, these investors received Nikola shares at a discount, by and large earmarked at around $10.

In an S-one filing with the U.Due south. Securities and Exchange Commission (SEC) on the 15th of June, Nikola disclosed:

• up to 890,000 shares of Common Stock that are issuable upon the practice of 890,000 warrants originally issued in a private placement in connection with the initial public offering of VectoIQ
• up to 23,000,000 shares of Common Stock that are issuable upon the exercise of 23,000,000 warrants originally issued in the initial public offering of VectoIQ.

Nikola too stated that a farther 53.39 million common shares forth with 890,000 warrants may be sold by "selling security holders". However, the company will not receive whatsoever proceeds from the auction of these securities.

We noted in our previous postal service that outstanding SPAC warrants to purchase an amass of 23,890,000 shares became exercisable on the 3rd of July 2020. Withal, as the 3rd of July was a public holiday in the United States, the effective date from which these warrants could be exercised was the 6th of July and the window remains valid for five years. In a crucial caveat, we highlighted that the SEC needs to approve any liquidation related to these warrants.

This brings us to the crux of the thing. Nikola shares take plunged over 31 percent since Mon's opening price of $58.90. We argue that the uncertainty surrounding when these warrants will be exercised is exacting a huge psychological cost. It is an axiom that markets hate uncertainty. Consequently, nosotros recommend that Nikola should take reward of a stipulation in its South-1 filing that allows for an early exercise of warrants should the stock price trade above $18 for twenty out of 30 trading days. Nikola shares fulfilled this requirement toward the end of June. At present, in order to strength an early practise, Nikola would simply take to give a 30-day advance notice.

Carry in mind that these warrants will be exercised sooner or later. Consequently, it would perhaps exist a more sensible movement for Nikola to opt for an early on practise, take the curt-term blow, and and so work toward achieving its stated goals. This path should theoretically offer a much smaller window for shareholders to suffer as opposed to one where protracted dubiety and hurting have to be endured before these warrants are exercised.

Disclaimer:

The writer does not concur whatever long or short position in Nikola shares.

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Source: https://wccftech.com/nikola-nkla-should-opt-for-an-early-exercise-of-spac-warrants-and-end-the-uncertainty-that-is-crushing-the-stock-price/

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