Nikola Corp. will ask shareholders to dilute their holdings in the startup electric truck manufacturer by authorizing 200 million new shares, proceeds from which could scale electric truck operations or fight off a hostile takeover attempt.
The putative poison pill defense could ward off acquirers aware that Nikola shares are cheap, closing Friday at $7.52 after touching $93 in the days after its SPAC merger in June 2020.
Allegations of fraud, which led Nikola to agree to pay a $125 million fine to the Securities and Exchange Commission and are at the heart of criminal charges against founder and former Executive Chairman Trevor Milton, contributed to a long share price decline.
The company, which also said it could use stock sale proceeds for acquisitions, said it knows of no current takeover threats.
Capital raising clue
The proposal for Nikola’s June 1 annual meeting is the strongest signal yet of how the company plans to raise money needed to scale production of its battery-electric and fuel cell-electric Class 8 trucks and finish building a $600 million greenfield plant in Coolidge, Arizona. Nikola (NASDAQ NKLA) plans to build 300 to 500 Tre battery-electric trucks this year beginning in Q2.
With most of the drama from the last year and a half behind it, Nikola has won orders and several letters of intent for its Tre Bev cabover truck based on the Iveco S-Way. Iveco, part of CNH Industrial, is Nikola’s manufacturing joint venture partner in Europe, where Nikola shares a retooled Iveco factory in Ulm, Germany.
Nikola said during its fourth-quarter earnings call that its cash on hand at the end of 2002 could fall as low as $225 million to $250 million, including selling stock to Tumim Stone Capital under two previously arranged equity lines of credit through which it can set the timing for stock sales at a 3% discount to the closing price on the day that notice of the sale is filed.
The company last week filed to sell 17.03 million shares. Based on Friday’s closing price of $7.52 before the discount, Nikola would add about $124 million to its balance sheet.
“We plan to make sure we always have adequate liquidity to fund the next 12 months of operations throughout 2022,” CFO Kim Brady said on Nikola’s Q4 earnings call on Feb. 24. “We will monitor the equity capital markets closely and raise additional capital when appropriate in 2022.”
Getting shareholders to agree to raise the total number of authorized shares to 800 million from 600 million would raise $1.5 billion based on Friday’s closing price. That would more than cover the $1 billion that Brady has said Nikola needs to cover its manufacturing ramp-up.
Nikola had about 413 million outstanding shares as of Dec. 31, leaving room for issuing more than 100 million new shares even if holders of existing shares reject the move that could dilute the value of their holdings by as much as a third.
In its proxy filing with the SEC on Friday, Nikola said getting the authorization would allow it to skip a separate vote later. It acknowledged the dilution.
“The issuance of additional shares of common stock will decrease the relative percentage of equity ownership of our existing stockholders, thereby diluting the voting power of their common stock and, depending on the price at which the additional shares are issued, may also be dilutive to any future earnings per share of our common stock,” the proxy said.
Nikola’s top five executives, including CEO Mark Russell and CFO Brady, have agreed to work for a second year at a salary of $1 a year with no cash bonuses in exchange for stock grants that would be awarded in June 2023.
Shareholders cast 43% of votes in favor of the executive compensation plan last year, but Nikola excluded abstentions in voting to raise the percentage of approval.
Russell to overtake Milton as biggest shareholder
Russell so far has been awarded 165 million shares for 2020 and 2021. The former president of Worthington Industries, who joined Nikola as president in 2019, stands to replace Milton as Nikola’s largest shareholder.
On Dec. 31, Russell held 11.7% of Nikola’s stock, or 49,774,487 shares, with options to buy 6.3 million more before May.
Shares awarded to the top executives are based on the company achieving stock appreciation milestones set at $25, $40 and $55 a share.
“Our stock-based compensation model ensures that our stockholders are rewarded by our performance over time prior to our executive officers realizing compensation,” Nikola Chairman Steve Girsky said in a letter to shareholders issued with the proxy.
Milton, who is scheduled to stand trial on federal fraud charges in April, held 11.8% of Nikola shares, including 1.25 million shares held by his spouse, as of Feb. 9. He has disposed of hundreds of millions in company stock over the last year. Milton and Russell jointly own an additional 9.6%, or 39,876,497 shares. Russell has the sole vote on what to do with them.