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Reuters
4 days ago
- Business
- Reuters
SPACs trigger bad case of Wall Street amnesia
NEW YORK, May 28 (Reuters Breakingviews) - Tragedy plus time is the formula for comedy, but on Wall Street it equals opportunity. Wait a while and even the costliest failures will be resurrected. Look no further than the phenomenon of cash-stuffed shells designed to find takeover targets, which are making an unlikely return just a few years after a fateful farce. Investors freely underwrote such blank-check firms in 2020 and 2021. In those two years alone, special-purpose acquisition companies raised some $250 billion with which to go shopping. Their 860 initial public offerings accounted for, opens new tab 62% of all market debuts, according to research outfit SPACInsider. Roughly half of them, however, failed to find a target within their typical two-year deadline, instead returning the cash to shareholders. They were the lucky ones. By custom, SPACs list at an initial price of $10. More than 90% of those that both found a merger partner and are still publicly listed trade below that all-important benchmark price as of early May. Dozens of them - including shared office-space lessor WeWork and electric-truck maker Lordstown Motors - collapsed, adding to the bonfire of billions. Disaster is no deterrent in finance, however. Onetime bond trader John Meriwether managed to raise money for an ill-fated second hedge fund following the $3.6 billion bailout orchestrated by the Federal Reserve of his highly leveraged Long-Term Capital Management. Jon Corzine was hired to run brokerage firm MF Global, and presided over its collapse in 2011, after he had already been ousted from both Goldman Sachs and the New Jersey governor's mansion. Before being elected U.S. president, Donald Trump kept luring investors into casino ventures despite his propensity for bankruptcy, opens new tab. Serial SPACsters flaunt a similar bravado. Among the 80 shell companies that have gone public this year or disclosed plans to do so, according to SPAC Research data, are ones sponsored by dealmaker Michael Klein, opens new tab, investment banking boutique Cantor Fitzgerald, opens new tab and buyout firm The Gores Group, opens new tab. The trio is part of a small club of 14 sponsors with at least eight SPACs apiece to their name, accounting for a combined 150. Even these impresarios have struggled, however. A fifth of their shell companies were liquidated. More than 40% are trading, or were sold, below the $10-a-share threshold, according to a Breakingviews analysis. Worse, there hasn't been much soul-searching about how to remake SPACs, beyond some enhanced disclosure requirements implemented, opens new tab last year by the U.S. Securities and Exchange Commission. There's a market nonetheless. This is partly because the money a blank-check firm raises is held in a trust typically earning interest from ultra-safe Treasury bills, and shareholders can get a refund on their contribution once the SPAC unveils a deal. Hedge fund managers therefore tend to regard shell companies as akin to fixed income investments with equity upside, which are especially appealing when markets swing wildly. The cash redemption rate in 2022 exceeded 80%. As CEOs and investors search for alternatives to sluggish traditional M&A and IPO markets, though, SPACs could represent a fresh opportunity, albeit with refinements. One would be to share the spoils, as started to become more of the norm. Sponsors typically receive a 20% stake in founder shares at a steep discount. Instead of keeping this entire 'promote,' setting some aside for other owners could persuade them not to redeem their shares. It would put real money on the table. Early SPAC advocate Chamath Palihapitiya boasted of making roughly $750 million from the vehicles he sponsored through his Social Capital, even as many other investors lost money. Another important factor is the size and cohort of investors a sponsor attracts by privately placing shares ahead of, or alongside, an acquisition. These private investments in public equity tailed off at the end of the boom. Their presence, depending on the reputation of the investors and the amount committed, can help validate a deal's valuation, one of the potential virtues of SPACs. Price discovery in an IPO can be dicey, as Venture Global (VG.N), opens new tab discovered earlier this year. The liquefied natural gas exporter had to slash its valuation after investors balked. Even then, shares tumbled when they began trading and are 48% below where they started. Simply having Fidelity or T. Rowe Price in a SPAC deal can't guarantee success, of course, but it at least adds an outside stamp of approval. Most important, however, is to seek healthier, more established companies as merger partners instead of unproven science projects. A SPAC is a poor substitute for early-stage venture-capital fundraising. The initial flood left a lot of firms hungry to do deals, though, in turn prematurely ushering too many private firms into publicly traded life. Gores provides a useful example of how deals can optimally work. In 2016, its first SPAC bought century-old Hostess Brands from buyout shop Apollo Global Management (APO.N), opens new tab and billionaire Dean Metropoulos for $725 million. JM Smucker (SJM.N), opens new tab paid $5.6 billion for the Twinkies maker seven years later. Verra Mobility's (VRRM.O), opens new tab share price also has more than doubled since another Gores SPAC acquired the electronic toll-payment service in 2018. The recent blank-check resurgence, by contrast, is sending mixed signals. Private equity firm Ares Management (ARES.N), opens new tab successfully extended the life of one it is sponsoring with only about 1% of shareholders redeeming, opens new tab, an indication of confidence. Backers including Soros Fund Management are kicking in $110 million of financing to supplement the $550 million of cash in its trust. And yet the vehicle is buying, opens new tab Kodiak Robotics, a self-driving truck technology startup that looks to be an incongruously early-stage venture for the New York Stock Exchange, in a $2.5 billion deal. Perhaps the biggest reason to remain skeptical about SPACs and their skewed economics is to consider which side of the trade buyout shops prefer: they are more likely to sponsor than sell into them. Collectively, private equity funds own stockpiles of aging companies that are proving difficult to sell or take public. If the industry starts embracing SPACs for exits, as occurred with Hostess and a handful of others, they might be worth a second look. For now, it's just a degenerative case of Wall Street amnesia. Follow @jgfarb, opens new tab on X
Yahoo
12-05-2025
- Automotive
- Yahoo
Slate Auto crosses 100,000 refundable reservations in two weeks
Buzzy new EV startup Slate Auto has racked up more than 100,000 reservations for its customizable low-cost electric pickup truck, the company has confirmed to TechCrunch. Slate crossed the milestone over the weekend, just a little more than two weeks after coming out of stealth mode and unveiling the truck at an event in Los Angeles, California. The company has said the truck will start below $20,000 after applying the $7,500 federal EV tax credit and plans to build the vehicles at a former printing plant in Warsaw, Indiana, as TechCrunch first reported. "We are truly humbled by America's response to Slate's brand launch and the launch of our truck," Slate's chief commercial officer Jeremy Snyder said in a statement to TechCrunch. "We are excited for what the future holds." Collecting 100,000 reservations so quickly is one sign of how much interest there has been in Slate since it revealed the truck, but it's no guarantee those reservations will translate to sales. The company is only asking prospective buyers to plop down $50 to reserve their place in line to eventually order the truck; the fee is refundable. Many other EV startups have touted reservations in the past only to fail to live up to the expectations of such big, round numbers. Fisker filed for bankruptcy having sold just a few thousand Ocean SUVs despite once claiming more than 60,000 reservations. Lordstown Motors, meanwhile, was charged by the Securities and Exchange Commission (SEC) for misleading investors about the number of "preorders" for its own electric pickup truck. (Lordstown Motors similarly filed for bankruptcy and ultimately settled with the SEC.) Slate has big goals for its truck, which -- for a currently undisclosed price -- can also be transformed into an SUV. The company says it will have capacity to make as many as 150,000 vehicles by the end of 2027 at the Indiana factory. And it has big backers helping Slate try to reach that goal, including Jeff Bezos (through his family office, Bezos Expeditions), Guggenheim Partners CEO Mark Walter, and VC firm General Catalyst. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
12-05-2025
- Automotive
- Yahoo
Slate Auto crosses 100,000 refundable reservations in two weeks
Buzzy new EV startup Slate Auto has racked up more than 100,000 reservations for its customizable low-cost electric pickup truck, the company has confirmed to TechCrunch. Slate crossed the milestone over the weekend, just a little more than two weeks after coming out of stealth mode and unveiling the truck at an event in Los Angeles, California. The company has said the truck will start below $20,000 after applying the $7,500 federal EV tax credit and plans to build the vehicles at a former printing plant in Warsaw, Indiana, as TechCrunch first reported. "We are truly humbled by America's response to Slate's brand launch and the launch of our truck," Slate's chief commercial officer Jeremy Snyder said in a statement to TechCrunch. "We are excited for what the future holds." Collecting 100,000 reservations so quickly is one sign of how much interest there has been in Slate since it revealed the truck, but it's no guarantee those reservations will translate to sales. The company is only asking prospective buyers to plop down $50 to reserve their place in line to eventually order the truck; the fee is refundable. Many other EV startups have touted reservations in the past only to fail to live up to the expectations of such big, round numbers. Fisker filed for bankruptcy having sold just a few thousand Ocean SUVs despite once claiming more than 60,000 reservations. Lordstown Motors, meanwhile, was charged by the Securities and Exchange Commission (SEC) for misleading investors about the number of "preorders" for its own electric pickup truck. (Lordstown Motors similarly filed for bankruptcy and ultimately settled with the SEC.) Slate has big goals for its truck, which -- for a currently undisclosed price -- can also be transformed into an SUV. The company says it will have capacity to make as many as 150,000 vehicles by the end of 2027 at the Indiana factory. And it has big backers helping Slate try to reach that goal, including Jeff Bezos (through his family office, Bezos Expeditions), Guggenheim Partners CEO Mark Walter, and VC firm General Catalyst.
Los Angeles Times
19-02-2025
- Automotive
- Los Angeles Times
Electric truck startup Nikola files for bankruptcy
Nikola, the startup that sought to build fleets of electric heavy-duty trucks, has filed for bankruptcy and plans to shut down. The company, which filed for Chapter 11 bankruptcy Wednesday, expects to sell all or most of its assets in order to maximize value for shareholders and ensure an 'orderly wind down of its businesses,' a release announcing the filing said. Nikola was founded in 2015 and went public in 2020, one year before selling its first electric vehicle. Although investors with an eye on Tesla's success initially showed enthusiasm for the Phoenix-based startup, stock prices soon began to plunge as doubts emerged about the viability of the company's technology. Nikola's troubles worsened when its founder, Trevor Milton, was convicted on fraud charges in October 2022 stemming from false and misleading statements he made about the development of electric and hydrogen-powered trucks. Prosecutors said Milton created a misleading video of a hydrogen-powered semi truck prototype cruising along a flat road. To film the video, prosecutors said, the truck was towed to the top of a hill and released to imitate the appearance of driving. The company said it has roughly $47 million in cash on hand as it enters the bankruptcy process and plans to use a portion of the funds to continue certain direct-to-consumer sales and support operations for trucks currently in the field. Nikola manufactured both hydrogen-electric and battery-electric semi trucks, and its fueling network has dispensed more than 330 metric tons of hydrogen, said Chief Executive Steve Girsky. 'Nikola has taken significant steps to move zero-emissions transportation forward,' Girsky said in a statement. 'Like other companies in the electric vehicle industry, we have faced various market and macroeconomic factors that have impacted our ability to operate.' Girsky took over as Nikola's chief executive in August 2023, becoming the company's fourth leader in four years. According to the company's most recent quarterly report, the company shipped 90,000 vehicles in the three months that ended Sept. 30 last year and posted a net loss of nearly $200 million during that period. That marked an improvement over the more than $425-million net loss the company registered in the same period the year prior. Over the past year, investors have bailed on the company, sending its share price tumbling from a high of $31.20 in late March to well under a dollar this week. In a bankruptcy filing, the company listed liabilities of between $1 billion and $10 billion and reported assets of $500 million to $1 billion. The filing said the company owes money to between 1,000 and 5,000 creditors. Nikola is among several electric vehicle startups with ambitious plans that failed to come to fruition. Lordstown Motors, an electric pickup truck company founded in Ohio in 2018, filed for bankruptcy in 2023 and was charged by the Securities and Exchange Commission for misleading investors in 2024. Manhattan Beach-based Fisker made electric SUVs and convertibles before filing for bankruptcy in June 2024. A handful of EV makers are still trying to stake out territory in the burgeoning industry, though none have had the widespread success of Elon Musk's Tesla. Rivian, the electric pickup and SUV maker based in Irvine, is currently trading at around $14 per share. In February 2022, shares were valued at more than $60. The company has struggled to keep up with production targets, but established a key partnership with Volkswagen last year. Lucid Motors, which set its sights on creating luxury electric vehicles beginning in 2016, has also fallen short of its sales and production goals.
Yahoo
19-02-2025
- Automotive
- Yahoo
Nikola, an American Electric-Truck Startup, Has Filed for Bankruptcy
, the electric pickup and semi-truck startup manufacturer, has filed for Chapter 11 bankruptcy. Court filings show that the company has about $47 million in cash on hand, with liabilities between $1 billion and $10 billion. Despite enjoying early enthusiasm from investors, Nikola struggled to deliver enough vehicles to turn a profit. Nikola, the Phoenix-based EV startup focused on electric and hydrogen commercial trucks, has filed for Chapter 11 bankruptcy. The news comes after reports earlier this month that the fledgling automaker was running out of money. The company has experienced a rocky 10 years since it was founded in 2014 with a focus on both electric and hydrogen fuel-cell vehicles. In 2020, Nikola revealed the Badger, a tough-looking EV pickup with both EV and hydrogen powertrains. Plans looked promising enough for General Motors to sign on to aid in development ahead of a 2022 launch. The company was accused of fraud a short time later, with then-Nikola CEO Trevor Milton found guilty of multiple charges in 2022. After falling out with Milton, Nikola changed course, canceling the Badger and refocusing its efforts on commercial trucks. The company delivered its first electric semi-trucks in 2022, but it has not been able to deliver enough in the intervening years to make a profit. Late last year, Nikola announced it had $200 million in cash and $270 million in long-term debt. With new reports coming out earlier this month that Nikola was nearing a bankruptcy announcement, the company's stock price plummeted to under a dollar. In a release confirming the bankruptcy filing on Wednesday, Nikola said it had about $47 million in cash on hand. The company intends to continue with "limited" support for trucks on the road. Court filings confirm that the automaker has liabilities between $1 billion and $10 billion, with the number of creditors it owes between 1000 and 5000. Nikola's filing makes it the third high-profile EV startup to declare bankruptcy in recent years. Lordstown Motors, another EV pickup startup, sought bankruptcy protection in 2023. A year later, Fisker, the California-based startup headed by Henrik Fisker, went belly up. You Might Also Like Car and Driver's 10 Best Cars through the Decades How to Buy or Lease a New Car Lightning Lap Legends: Chevrolet Camaro vs. Ford Mustang!
