Lucid Spac: through a glass, darkly

The operative word in blind pool is, alas, blind. Late on Monday, much-hyped US electric vehicle maker Lucid Motors confirmed it would merge with Churchill Capital IV, a special purpose acquisition company led by dealmaker, Michael Klein. Most Spacs trade at around their $10 issue price until a merger partner is announced. Investors determine whether the bargain is fair later on, when details of valuation and structure are disclosed.

No such logic applied to Lucid and Churchill. A social media frenzy had already sent shares of Churchill as high as $60. Deal mechanics were published on Monday. Lucid and institutional backers are coming in at either $10 or $15. Churchill shares crashed into the low $30s in early trading on Tuesday.

SPACs, space-age cars and social media are a combustible mix.

Lucid is desperate for cash. Its flagship luxury electric vehicle costs $70,000. Its cars will not even come off its assembly line in the Arizona desert until later this year. Its forecast cash burn over the next four years is nearly $10bn. But Lucid claims that by 2026, with a market share among EVs of just 0.5 per cent, it can deliver 250,000 cars and $23bn in revenue.

As part of the merger, Lucid has raised $2.4bn from the likes of BlackRock and Fidelity. Unusually, these shares are being sold for $15 each rather than the customary $10. The stock was still immediately twice as valuable even at a collapsed Churchill share price of $30.

The biggest winner is Lucid’s largest current shareholder, Saudi Arabia’s Public Investment Fund. It will roll in its stake at just $10 a share. In return it will receive two-thirds of a listed company theoretically worth $64bn at a Tuesday lunchtime trading price of $40 per share. The Lucid business was valued at just $12bn in deal documents.

At $40 Lucid looks less of steal compared with Tesla. By rolling over inexpensively, PIF and other Lucid backers have profited instantly and handsomely. That value creation has been powered by retail investors some of whom may have been unclear what they are buying. Klein has already raised his fifth and sixth Spacs. 

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