For several weeks, rumors swirled that Churchill Capital IV (NYSE:CCIV) was preparing to merge with Lucid Motors. Lucid, one of the hottest electric vehicle (EV) start-ups, is about to begin delivering its luxury sedan, the Lucid Air, within a few months. At long last, the companies confirmed the deal last night, announcing that Churchill Capital IV and Lucid Motors have entered into a definitive merger agreement. Shares promptly tanked in extended trading.
Just last week, I suggested that I wouldn’t be surprised if this ended up being a “buy the rumor, sell the news” situation. That adage refers to a common phenomenon in the market when an event fails to live up to expectations. Here’s why investors may be disappointed in the deal.
How the deal is structured
Over the weekend, Bloomberg reported that a deal might be imminent, suggesting that the announcement could come as soon as Tuesday. The valuation that Lucid was rumored to fetch was around $15 billion. The structure of the deal was always going to be a major risk for anyone investing in Churchill Capital IV based on the speculation.
The transaction will include Churchill Capital IV’s $2.1 billion in cash, plus a $2.5 billion PIPE (private investment in public equity) anchored by Saudi Arabia’s Public Investment Fund (PIF) — which is currently Lucid’s majority shareholder — and other familiar institutional heavyweights like BlackRock and Fidelity…