Electric-car buzz pushes up shares in company with nothing but cash
Churchill Capital Corp IV’s stock has more than tripled on report it is in talks with Lucid Motor
When news emerged in December that Churchill Capital Corp IV, a blank-check company with no assets beyond its $2 billion in cash, had made an offer to acquire DirecTV, its stock barely moved.
After a report in January that Churchill was in talks to merge with the buzzy electric-vehicle startup Lucid Motors Inc., it was a different story.
Speculation about the possible combination spread on Reddit and other social-media platforms, fueled by Tesla Inc.’s surge and a bet on a post-gasoline future. Traders sought additional information online and pointed to myriad bits of information to infer a deal was imminent. One online discussion prompted a trader to drive to an airport to photograph a jet that other traders conjectured was connected to the deal.
The stock has surged more than 220% since the report last month, the biggest-ever stock increase of a special-purpose acquisition company before announcing a merger, according to SPACinsider.com. Talks between the two companies are continuing, though a deal isn’t imminent, according to people familiar with the matter.
Such stock run-ups historically have been uncommon for SPACs, and even after they announce merger targets, their shares rarely jump so significantly. That is because the SPACs are paying what they believe to be a market price for the company they are merging with, so in theory, the shares shouldn’t surge unless they are undervaluing their target company.
Churchill’s experience illustrates the extraordinary appetite among stock-market investors for electric-vehicle startups today, where even the prospect of a merger can send a SPAC stock soaring. The fervor is being fed by the rise in Tesla’s shares, which has pushed the auto maker’s market capitalization to above that of Facebook Inc. as investors bet on a rapid global transition to electric cars and believe the time is ripe to invest in the next growth opportunity.
Tesla has a market value of more than $800 billion, about seven times that of Ford Motor Co. and General Motors Co. combined, though its U.S. market share in 2020 was about 1.2%, according to LMC Automotive.
Churchill said last month in response to unusual trading of its stock that it is “always evaluating a number of potential business combinations.” Lucid declined to comment.
Several companies planning to make electric cars, including Fisker Inc. and Lordstown Motors Corp., are valued above $4 billion; they haven’t produced any products or revenue.
The clamor has sparked comparisons to the dot-com bubble of 2000, when a similar rapid run-up of stocks with little or no revenue was common. It has led to more voices calling the combined electric-vehicle and SPAC mania unsustainable.
“It has gotten very frothy,” said David Erickson, a senior fellow at University of Pennsylvania’s business school and a former investment banker who took tech companies public in the dot-com boom. The broad SPAC and electric-vehicle frenzy “is gonna end badly—it’s just a question of when and how,” he said.
Churchill IV is headed by Michael Klein, a former star investment banker at Citigroup Inc. and adviser to Saudi Arabia’s sovereign investment fund. Mr. Klein’s Churchill Capital Corp. has created several SPACs, including one that merged with health-care company MultiPlan Inc. in an $11 billion deal last summer.
Churchill IV raised $2 billion in July, making it one of the largest SPACs ever, and began looking for a target company with which to merge.
In December, The Wall Street Journal reported the company was making a bid for DirecTV, a unit of AT&T Inc. Churchill’s stock, which had been hovering around $10 per unit since it went public at that level, rose 0.6% for the day.
On Jan. 11, Bloomberg News reported Churchill was in talks to merge with Lucid, and Churchill’s stock soared 50% to $15. Lucid is backed by $1 billion from Saudi Arabia’s Public Investment Fund and is further along in development than many young rivals in the electric-vehicle space, with plans to start producing cars later this year. Little is known about the terms of any potential deal or Lucid’s finances, information that would normally be crucial to assessing how a combination should affect Churchill’s stock.
The report spurred users on Reddit, Twitter Inc. and the finance social-media platform StockTwits to point out apparent connections between Churchill and Lucid. There are some factual commonalities, such as an executive who worked with both companies. Other possible links have been more tenuous, and in some instances inspired real-world sleuthing.
One online poster noted a private jet was going on a multi-leg trip from San Jose, Calif., to Phoenix, to Teterboro airport near New York City—all places with operations for Lucid or Churchill. The observation spawned speculation on Twitter and Reddit that the jet was ferrying executives involved in an imminent deal. One user on StockTwits drove to Teterboro and waited for two hours, photographing the jet upon landing. The user, who declined to be named, said he didn’t think the jet was connected, as it appeared to be a family exiting the aircraft.
The stock soared as high as $27 in January before surging again Tuesday to close above $32. Trading last month was halted multiple times amid volatility.
Buyers include Reddit users like Fred Rosa.
Mr. Rosa, a 21-year-old based in Amsterdam, recently finished college and has been investing for about six months on the side, finding he could make far more trading individual stocks than index funds.
He found out about Churchill, which has the ticker CCIV, by reading a channel on Reddit—a so-called subreddit—devoted to SPACs.
“I just opened Reddit one day and literally every comment on the SPAC subreddit was CCIV,” he said. He knew he was buying on speculation, he said, but “the way it was being framed at the time was it was the trade of a lifetime.”
As days ticked by without an announcement, he grew nervous. Perhaps the commenters were wrong, he thought, realizing he could lose a lot of money if a deal didn’t materialize. He sold, taking a roughly $950 profit on the $3,500 he put in.
“This is a meme market,” he said. “That is just how things are right now.”
This story has been published from a wire agency feed without modifications to the text.
Source: livemint
