The Best News for Lucid Would Be a Take-Private Deal From PIF

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While Lucid Group (NYSE:LCID) has seen LCID stock drop in 2023, down more than 26% year-to-date, it could always be worse. It could be Polestar Automotive (NASDAQ:PSNY). Its shares are off nearly 60%. 

I can’t remember the last time I wrote about Lucid. 

It turns out it was this past June. I wrote about three electric vehicle stocks whose share prices were poised to plunge. Before that, it was May 2022. Its controlling shareholder, Saudi Arabia’s Public Investment Fund, had just filed its Q1 2022 13F, showing it sold none of its shares in the quarter. 

For whatever reason, PIF continues to stick around like a foul odor, leading me to believe that eventually, it intends to pick up Lucid’s dead carcass and create a global force in automotive manufacturing.

For LCID shareholders, the best news would be a take-private offer from PIF, putting the luxury EV maker out of its public misery. 

That’s kind of a bullish stance, no?

Anyway, here’s why it makes sense. 

Lucid Stock Needs a Win

As I write this on Nov. 2, LCID shares are up more than 12%. Investors are betting interest rates won’t move any higher in 2024. While that’s great news if you’re thinking of buying or selling a house, I’m not sure how this helps Lucid, a company that’s struggling to produce any vehicles. 

The bounce reeks of desperation.

The transition to electric from fossil fuels will take far longer than initially thought. As a result, everyone who manufactures EVs will scale back production. 

That’s great if you’re Volkswagen (OTCMKTS:VWAGY) and still have plenty of capacity for producing vehicles powered by internal combustion engines (ICE). It’s not great if your life depends on making more than 1,550 vehicles a quarter. 

As I say, Lucid needs some good news. STAT!

PIF Can Deliver More Good News

At the end of May, Lucid sold 173.5 million shares of its stock to investors in a secondary offering at $7.76 a share. That was good for $1.2 billion in net proceeds. In addition, it sold $1.8 billion in stock to PIF, raising $3 billion in net proceeds. 

It planned to use the proceeds to keep the lights on at its Arizona assembly plant. I’m only half kidding. 

“The $3 billion will help keep it in business for another year or two. However, it won’t be enough to keep LCID shares from falling into penny-stock status,” I wrote in June. 

That’s precisely what happened. 

Accounting for the dilution of both offerings, PIF owns 60.5% of Lucid’s stock. How much it’s paid for all of these shares, I don’t know for sure. estimates the average price paid is $19.65. Based on its 13D/A from June, that’s approximately $27 billion. Right now, the entire market cap is $10.4 billion. It’s losing in a big way. 

But let’s say it offers a 50% premium to buy the shares it doesn’t already own. That’s about $6.2 billion [$10.4B * 1.5 = $15.6B * .40 (other shareholders) = $6.2B] to take it private.

It now owns 100% of Lucid and can do what it wants with the EV maker. To keep it in the public realm at this point would be a disservice to all its shareholders. 

While it’s sad that LCID shares once traded near $60, the best solution is to put the company out of its misery. 

The Bottom Line on LCID Stock

If you’re sensing that I’m not bullish about Lucid’s chances, you’d be 100% correct. Even in my May 2022 article, I suggested PIF held all the cards in this relationship. Nothing’s changed. It’s still got Lucid over a barrel.

As an M & A arbitrage bet, I see why someone would pay $4.50 for LCID stock at the moment. 

In the worst-case scenario, its shares go to zero, and you lose $4.50. In the best case, a White Knight shows up out of nowhere and offers $10 a share to buy the company. 

The most likely scenario, however, is that PIF offers $6-$7 a share for the remaining 40% it doesn’t already own. You make a few dollars for your trouble. Everyone wins except the poor sods who’ve held from $55 down to sub-$5.

That’s life, I guess. 

On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.

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