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Why SPAC Stock Churchill Capital IV Crashed Today

By Joe Tenebruso - Feb 24, 2021 at 6:35PM

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Investors may have overpaid for the chance to acquire the next Tesla.

What happened

Shares of Churchill Capital IV (CCIV) plunged 18.5% on Wednesday, following the special purpose acquisition company's deal with electric vehicle maker Lucid Motors.

So what

Churchill's stock price surged to a high of $64.86 on Feb. 18 following reports that the SPAC was in talks to merge with Lucid. Yet since the two companies made their merger agreement official on Monday, Churchill's shares have shed approximately half their value. 

A downwardly sloping digital stock chart.

Churchill Capital IV's stock price is down sharply since announcing its deal with Lucid Motors. Image source: Getty Images.

Many investors were excited about the prospect of owning a piece of Lucid via their investment in Churchill. The company's luxury electric vehicles are expected to compete with those of Tesla (TSLA 0.59%). Lucid is led by Peter Rawlinson, who formerly served as Tesla's chief engineer for its popular Model S sedan. 

Unfortunately, Churchill's shareholders weren't as pleased when they were made aware of the terms of its merger with Lucid.

Now what

The deal values Lucid at $24 billion. Churchill's shareholders will own 16.1% of Lucid after the merger. So, what's the problem? Well, investors had bid Churchill's market cap up to roughly $15 billion ahead of its merger announcement. 

The stock market can be irrational at times, but it eventually corrects its mistakes. The market appears to be doing just that by driving down the price of Churchill's shares.

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