Nikola Announces Acquisition Of Battery Pack Maker Romeo Power

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Shares of electric truck maker Nikola Corp (NASDAQ:NKLA) rose as much as 4% by late Monday morning, initially falling about 4% in early-morning trades after the company announced an agreement to acquire battery pack supplier Romeo Power Inc (NYSE:RMO). The deal is worth $144 million and will give Nikola control over an essential part of its supply chain.

Nikola Announces Deal To Buy Romeo Power

The all-stock deal values Romeo at 74 cents per share, representing a 34% premium from the company’s closing price on Friday. Shares of the battery pack supplier surged in morning trades on Monday, climbing as much as 38%.

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Under the terms of the deal, Nikola will provide $35 million in interim funding to Romeo, enabling it to maintain its operations until the closing of the transaction. Nikola expects the acquisition to result in up to $350 million in savings over the next four years.

Romeo Power specializes in constructing battery modules and packs for large commercial vehicles like those manufactured by Nikola. Romeo constructs those modules and packs using lithium-ion battery cells made by other companies.

Nikola started shipping its electric semis earlier this year and expects to ship 300 to 500 trucks this year. The electric semi maker has been Romeo's largest customer.

A Lifeline For Romeo Power?

Mark Russell, CEO of Nikola, said the acquisition will allow the company to speed up the development of their electrification platform. He added that their strong, collaborative relationship with Romeo will enable them to "successfully integrate and deliver the many expected strategic and financial benefits of this acquisition."

CNBC described the deal as a "lifeline for Romeo," one of the many EV-related companies to go public via SPAC mergers. Nikola also merged with a special purpose acquisition company to go public. Romeo Power's SPAC merger was completed in late 2020 and valued it at $900 million.

However, at the end of the first quarter, the battery pack manufacturer had only $66.8 million in cash and equivalents on its balance sheet following over $250 million in losses. Romeo's stock has been trading at less than $1 in the past several weeks, and as interest rates have been climbing, CNBC speculated that the company "may have been running out of options to stay afloat."

Nikola Pushes To Increase Its Outstanding Share Count

Meanwhile, Nikola has been trying to secure the approval of shareholders to boost its number of outstanding shares. However, former CEO Trevor Milton has been blocking the electric semi maker's attempts to do that. Milton was ousted after allegations that he had misrepresented details about the company's technology and order book.

Nikola plans to announce the updated vote counts on the matter on Tuesday when it reconvenes its shareholder meeting. The company said in a regulatory filing on Monday morning that it already has enough unissued stock to complete the Romeo transaction, even if it still lacks enough votes to increase its outstanding share count.