Lordstown Motors’ Last Resort: Reverse Stock Split to Rescue Foxconn Partnership
Lordstown Motors, the electric vehicle (EV) manufacturer, is implementing a reverse stock split as a final effort to lift its stock price and secure a deal with Taiwanese manufacturer Foxconn. Following this announcement, the stock declined approximately 3.7% to $0.28 per share.
Lordstown’s board of directors approved a reverse stock split ratio of 1:15 during the recent shareholder meeting held on May 22. This means that when the market opens on Wednesday, every group of 15 shares will be consolidated into one outstanding share of common stock. The company assured that it will appropriately adjust existing equity-based awards and ensure that no fractional shares are distributed as part of the reverse stock split.
In early May, Lordstown Motors warned investors through a regulatory filing that it might be compelled to file for bankruptcy due to the potential withdrawal of crucial funding by Foxconn. Previously, Foxconn had committed to purchasing around 10% of Lordstown’s common stock for $47.3 million and had acquired Lordstown’s 6.2-million-square-foot factory in Ohio for $230 million in late 2021.
The disagreement between the two companies revolves around Lordstown’s stock price, which had fallen below $1, prompting the Nasdaq exchange to issue a delisting notice. On April 21, Foxconn sent a letter to Lordstown stating that the automaker had violated the investment agreement by having a stock price below $1 for 30 consecutive days, putting it at risk of delisting. Foxconn warned that it would terminate the investment agreement if the breach was not rectified within 30 days.
Lordstown Motors Faces Production Halt and Financial Challenges, Seeks to Salvage Foxconn Deal
Lordstown Motors, which became a publicly traded company through a merger with a special purpose acquisition company (SPAC), acknowledged in its first-quarter earnings report that it would likely halt production of its Endurance pickup truck in the near future due to persistent production delays, failure to secure a strategic partner for the truck, and limited ability to raise capital in the current market conditions.
To salvage the deal with Foxconn, Lordstown suggested that if its stock price remains above $1 per share for a continuous period of 10 trading days and Nasdaq confirms the fulfillment of the bid price requirement, it may convince Foxconn to proceed with the transaction, despite Foxconn’s potentially mistaken interpretation of the closing condition.
According to a regulatory filing, as of April 30, Lordstown Motors possessed only $165 million in cash, cash equivalents, and short-term investments. As a growing number of mobility companies, including Helbiz, Bird, and Arrival, which went public through SPAC mergers, have experienced their share prices plummeting below $1 per share, many have resorted to implementing reverse stock splits.
In conclusion, Lordstown Motors is taking a last-ditch effort to raise its stock price by implementing a reverse stock split, aiming to secure its deal with Foxconn. The outcome of this strategic move will determine the future of the EV manufacturer as it grapples with financial challenges and production setbacks.