Nikola Acquires Battery Company Romeo For $144M: What Investors Should Know

Clean energy transportation company Nikola Corp. NKLA announced the purchase of a battery company that could help bring its production in-house.

What Happened: Nikola is acquiring Romeo Power RMO, a battery company that announced it was going public via SPAC merger back in October 2020, for $144 million.

Romeo shareholders will receive 0.1186 of a share of Nikola for each RMO share they hold. The deal values Romeo at $0.74 per share based on the closing price of Nikola from Friday. The acquisition values Romeo at an equity value of $144 million. The deal is expected to close by the end of October 2022.

Nikola will provide Romeo with $35 million in funding as part of the deal, made up of $15 million in senior secured notes and up to $20 million for a pack delivery incentive.

The acquisition will help Nikola “secure control of critical battery pack engineering and production process,” according to the press release.

Nikola sees annual cost savings from the deal of $350 million by 2026.

Related Link: Founded By Tesla, SpaceX Engineers, Battery Maker Romeo Power Finds SPAC Deal 

Why It’s Important: Romeo is an energy storage company specializing in designing lithium-ion batteries for commercial vehicles. Nikola is the company’s largest customer. The two companies believe the acquisition can help accelerate product development for Nikola.

“Romeo has been a valued supplier to Nikola and we are excited to further leverage their technological capabilities as the landscape for vehicle electrification grows more sophisticated,” Nikola’s CEO Mark Russell said. “With control over the essential battery pack technologies and manufacturing process, we believe we will be able to accelerate the development of our electrification platform and better serve our customers.”

The acquisition, announced Monday, Aug. 1, is expected to help Nikola improve its efforts of vertical integration and improve costs on a key component of its electric vehicle efforts.

The company sees battery pack costs being reduced by 30% to 40% by the end of 2023.

Nikola’s acquisition of Romeo comes as both companies that went public via SPAC merger have seen their share prices fall from the $10 merger level. Nikola has also been the subject of short reports and criticism related to its former CEO Trevor Milton, who was indicted on fraud charges.

RMO, NKLA Price Action: Nikola shares are down 3% to $6.06 on Monday versus a 52-week trading range of $4.43 to $15.56. Shares are down 48% in the last year.

Romeo Power shares are up 26% to $0.69 versus a 52-week trading range of $0.44 to $7.44. Shares of Romeo are down 92% over the last year.