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Why Shares of Velodyne Lidar Acquirer, Graf Industrial, Are Trading Lower Today

By John Rosevear – Jul 7, 2020 at 5:33AM

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Investors are still scrambling to get up to speed on this deal.

What happened

Shares of Graf Industrial (GRAF) were trading lower on Tuesday, amid a broader sell-off of stocks in companies focused on the future of transportation. 

As of 11 a.m. EDT, Graf's shares were down about 5.4% from Monday's closing price.

So what

Graf is a special-purpose acquisition company that last week announced a deal to merge with Velodyne Lidar, the largest maker of lidar sensors. Velodyne's lidar sensors are used by highly automated and prototype self-driving vehicles, as well as by some types of robots. A lidar sensor uses invisible lasers to make detailed images of its surroundings; those images can then be compared to a detailed 3D map to help the vehicle or robot know exactly where it is at any moment. 

A prototype self-driving sedan developed by Ford and Argo AI, with Velodyne sensors visible on its roof.

See the two silver-and-green things on the very top of this Ford self-driving prototype? Those are Velodyne lidar sensors, often called "pucks" because of their hockey-puck shape. Image source: Ford Motor Company.

The market for lidar sensors is expected to grow rapidly over the next decade, and it's one that Velodyne has dominated for the last few years. 

Velodyne has never been a public company, but it has been on auto investors' radar screens for a while now. Ford Motor Company (F 2.52%) and Chinese search-engine giant Baidu (BIDU -1.88%) both invested in Velodyne in 2016; both use Velodyne's sensors in their self-driving research programs, as do many other high-profile companies.

The deal with Graf is a "reverse merger" that will essentially take Velodyne public, similar to the deal that made electric-truck start-up Nikola (NKLA -13.57%) a public company early last month. Once Graf's merger with Velodyne is complete, the merged company will be named Velodyne Lidar and its ticker symbol will be VLDR. 

Got all that? Simply put, right now, Graf's shares are trading as a proxy for Velodyne's. So why is it down today? I think the answer is that after last week's big price jump, auto investors are reassessing where it -- along with some other future-tech transportation stocks, including Nikola's -- fits into their portfolios. 

Now what

Graf and Velodyne said last week that they expect the merger to close sometime in the calendar third quarter, meaning before the end of September. I expect we'll hear from both companies before then, likely in a second-quarter earnings report in late July or August. 

John Rosevear owns shares of Ford. The Motley Fool owns shares of and recommends Baidu. The Motley Fool has a disclosure policy.

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