GM considers boosting stake in Nikola in reworked deal
General Motors Co. is considering revisions to its deal with embattled Nikola Corp., according to people familiar with the discussions, and may seek a higher stake in the startup now that its valuation has fallen after allegations of deception.
GM tentatively agreed to take an 11% stake in Nikola as part of a cash-free deal made public last month. The Detroit carmaker would supply hydrogen fuel-cell technology to its junior partner and manufacture a new battery-powered pickup for it called the Badger. Talks to finalize the agreement are ongoing ahead of a Dec. 3 deadline.
Experts say it makes sense for GM to ask for a higher stake in the company since Nikola's stock price has dropped to $24.25 as of market close on Friday. Per the agreement between the two parties established on Sept. 3, Nikola was going to sell 47,698,545 shares of its common stock to GM Holdings. The stocks were valued at $2 billion based on the average price per share of $41.93, according to a Sept. 8 Nikola filing with the Securities and Exchange Commission.
"That equity doesn't make any sense because it's not a good deal for GM to be getting equity at $41.93 when the stock is well below that," said David Whiston, an autos equity analyst for Morningstar Inc. "GM wants more compensation because this equity now is a worth a lot less and also there is a lot more inherit risk to this situation because of the fraud accusations that are being taken seriously by the federal government."
GM’s due diligence on the startup has been questioned after a short seller accused Nikola of overstating its capabilities and know-how. The allegations – and federal regulatory probes into those claims – sent the Phoenix-based company’s stock price into a downward spiral. Nikola has denied the allegations against it and Trevor Milton, the company’s founder and former chairman.
Since the deal was announced on Sept. 8, Nikola stock has fallen by more than half and GM has sought better terms before closing, said the people, who asked not to be identified because the discussions are private. GM could push to raise its equity in Nikola beyond the planned 11% or seek warrants that would guarantee or even increase that level of ownership if the company raises more money.
GM’s potential interest in a larger stake in Nikola was reported earlier by CNBC.
Experts say it's Nikola that's at risk in the deal with GM because if the Detroit automaker backs out of the deal, it won't look good for a company already battling a scarred reputation.
"Not only does GM hold all the cards, but it has little to no incentive to compromise," said Jacob Frenkel, a securities enforcement attorney at Michigan-based law firm Dickinson Wright.
Officials at Nikola have tried to put the controversy behind it following Milton’s resignation on Sept. 21 by embarking on a charm offensive showcasing its innovations and role as an integrator of technology from strategic partners such as Robert Bosch GmbH.
Nikola on Thursday named Steve Shindler to its board, replacing Lonnie Stalsberg. Shindler until June served as chief financial officer of VectoIQ LLC, the special purpose acquisition company that arranged for Nikola to go public through a reverse merger. VectoIQ was run by Stephen Girsky, a former GM vice chairman who helped broker the partnership between GM and Nikola and now serves as vice-chair of the startup.
The boardroom changes came one day after Nikola postponed a December event where it had planned to show the Badger pickup and other vehicles. The Badger wasn’t mentioned in a statement Wednesday outlining Nikola’s strategy and vision.
Sam Abuelsamid, principal research analyst leading Guidehouse Insights, said if GM can get the right price for the shares the partnership is still "worthwhile" for the Detroit automaker.
"Assuming that everything goes to completion and Nikola starts selling the Badger pickup, that's another market, another customer for GM's electric vehicle platform," he said.
Nikola would also be GM's first fuel cell customer. Overall, GM said on Sept. 8 it expected to "receive in excess of $4 billion of benefits between the equity value of the shares, contract manufacturing of the Badger, supply contracts for batteries and fuel cells, and EV credits retained over the life of the contract."
"For GM it's all about selling more of the product that they're planning to build," Abuelsamid said.
The deal "has always been heavily stacked in GM's favor. Because GM was not investing any cash in this deal, there was no real downside for GM to do this."
Detroit News Reporter Kalea Hall contributed