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Why SPAC Churchill Capital IV's Stock Is Higher Today

By John Rosevear - Updated Feb 18, 2021 at 1:46PM

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There's something important to keep in mind about the potential deal with Lucid Motors.

What happened

Shares of special purpose acquisition company (SPAC) Churchill Capital IV (CCIV) were trading higher on Thursday. Reuters reported earlier this week that the SPAC was getting close to a deal to merge with electric-vehicle maker Lucid Motors. 

As of 1:15 p.m. EST, Churchill Capital IV's shares were up about 8.5% from Wednesday's close.

So what

If you've followed the Churchill-Lucid saga, you probably know that Reuters reported on Tuesday that the parties are close to a deal that would take Lucid public via a merger with Churchill. If you missed that report, here are the key points:

  1. Lucid and Churchill have agreed on key terms of a merger deal.
  2. Churchill is now in talks with investors to increase the size of the private investment in public equity (PIPE) that it would bring to the deal. SPACs use PIPES, which are funded by third-party investors, to bring added cash to merger deals.
  3. The PIPE in this deal could reach $1.5 billion or more, per the report.
  4. That $1.5 billion would be in addition to Churchill's own cash, about $2 billion, raised in its initial public offering (IPO) last year.

Auto investors have been eyeing Lucid for several years now. The company, led by Tesla (TSLA 7.33%) veteran Peter Rawlinson, has a nearly completed factory in Arizona and expects to begin shipping its Air, an electric luxury sedan with impressive specifications, in a few months. 

A white Lucid Air, a sleek electric luxury-sports sedan parked on a residential driveway.

Lucid will begin shipping its first electric vehicle, the Air luxury sedan, by midyear. Image source: Lucid Motors.

What makes this deal interesting is that Lucid isn't believed to be in urgent need of cash. The company's strategic investors include Saudi Arabia's Public Investment Fund, which has already invested $1 billion in the start-up. The order book for the Air is said to be quite strong. 

That's why investors are excited about the potential merger, of course, and that excitement is why Churchill's shares were higher on Thursday.

Now what

There's one more key point from the Reuters report that investors should keep in mind. According to the report, the deal will value Lucid at about $12 billion. If Churchill brings $2 billion to the deal at that valuation, Churchill investors will together own 16.7% of Lucid.

Why is that significant? Because as I write this on Thursday, Churchill Capital IV's market cap is about $15.8 billion, implying a market cap for post-merger Lucid of around $95 billion. That's very high for a company that has yet to ship a car. Trade carefully. 

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