Nikola has agreed to buy the ailing battery supplier in an all-stock deal.
Nikola, a Phoenix, Arizona-based manufacturer of heavy-duty commercial battery-electric vehicles has decided to acquire Romeo Power in a deal worth $144 million that will close towards the end of the year. The decision was made as Nikola secured stable access to lithium-ion packs for its electric semi production.
According to Forbes, the boards of Nikola and Romeo Power agreed to an offer of $0.74 per share, which is a 34% increase from the battery supplier's July 29 closing price. Nikola is also prepared to support Romeo Power with up to $35 million of funding to stabilize its operations until the deal closes later on this year.
Romeo Power is set to receive $15 million in senior secured notes and $20 million as a battery pack delivery bonus. Shareholders are expected to approve the deal soon.
Why Did Nikola Purchase a Struggling Battery Business?
Nikola CEO Mark Russell explained that they are Romeo Power's main customer and that the decision to acquire them was "defensive" in nature, "to make sure nothing disruptive happens here." He added that the decision was also a strategic one so that Nikola could gain more control of the battery production and bring it in-house.
Romeo Power, which is based in California, is known for its battery modules and packs for large electric commercial vehicles, which are manufactured using lithium-ion battery cells from other companies. They also provide the most batteries to Nikola, which expects to ship around 300 to 500 trucks this year, CNBC reported.
"Given our strong relationship with Romeo and ongoing collaboration, we are confident in our ability to successfully integrate and deliver the many expected strategic and financial benefits of this acquisition," Russel remarked.
Russell remarked on Nikola's "strong relationship" and "ongoing collaboration" with Romeo Power, which he believes would support a successful integration and reap strategic and financial benefits in the near future.
Romeo Power Receives a Lifeline from Nikola
Romeo Power is just one of several companies in the EV industry to have gone public through mergers. In late 2020, the company went public through a SPAC merger that valued the combined company at $900 million.
However, at the end of the first quarter this year, Romeo Power only had $66.8 million in cash and equivalents remaining following losses amounting to $250 million. As interest rates continued to rise and its shares dipping below $1, the battery supplier was running out of options.
Romeo Power appears to have been saved by the bell. Nikola's decision to acquire the battery supplier came after the EV manufacturer considered making its own battery packs in 2024 to keep costs low and boost volumes.
In late July, Romeo Power announced that it had completed the third and final phase of its relocation from Vernon, California to a new manufacturing center and headquarters in Cypress, Yahoo! Finance reported.
At the time, Romeo Power CEO Susan Brennan remarked that the relocation was a "significant milestone" for the company, which was looking to position itself for "planned expansion" into the marine and industrial markets.
