By Eliot Brown
When news emerged in December that Churchill Capital Corp IV, a
blank-check company with no assets beyond its $2 billion in cash,
had made an offer to acquire DirecTV, its stock barely moved.
After a report in January that Churchill was in talks to merge
with the buzzy electric-vehicle startup Lucid Motors Inc., it was a
different story.
Speculation about the possible combination spread on Reddit and
other social-media platforms, fueled by Tesla Inc.'s surge and a
bet on a post-gasoline future. Traders sought additional
information online and pointed to myriad bits of information to
infer a deal was imminent. One online discussion prompted a trader
to drive to an airport to photograph a jet that other traders
conjectured was connected to the deal.
The stock has surged more than 220% since the report last month,
the biggest-ever stock increase of a special-purpose acquisition
company before announcing a merger, according to SPACinsider.com.
Talks between the two companies are continuing, though a deal isn't
imminent, according to people familiar with the matter.
Such stock run-ups historically have been uncommon for SPACs,
and even after they announce merger targets, their shares rarely
jump so significantly. That is because the SPACs are paying what
they believe to be a market price for the company they are merging
with, so in theory, the shares shouldn't surge unless they are
undervaluing their target company.
Churchill's experience illustrates the extraordinary appetite
among stock-market investors for electric-vehicle startups today,
where even the prospect of a merger can send a SPAC stock soaring.
The fervor is being fed by the rise in Tesla's shares, which has
pushed the auto maker's market capitalization to above that of
Facebook Inc. as investors bet on a rapid global transition to
electric cars and believe the time is ripe to invest in the next
growth opportunity.
Tesla has a market value of more than $800 billion, about seven
times that of Ford Motor Co. and General Motors Co. combined,
though its U.S. market share in 2020 was about 1.2%, according to
LMC Automotive.
Churchill said last month in response to unusual trading of its
stock that it is "always evaluating a number of potential business
combinations." Lucid declined to comment.
Several companies planning to make electric cars, including
Fisker Inc. and Lordstown Motors Corp., are valued above $4
billion; they haven't produced any products or revenue.
The clamor has sparked comparisons to the dot-com bubble of
2000, when a similar rapid run-up of stocks with little or no
revenue was common. It has led to more voices calling the combined
electric-vehicle and SPAC mania unsustainable.
"It has gotten very frothy," said David Erickson, a senior
fellow at University of Pennsylvania's business school and a former
investment banker who took tech companies public in the dot-com
boom. The broad SPAC and electric-vehicle frenzy "is gonna end
badly -- it's just a question of when and how," he said.
Churchill IV is headed by Michael Klein, a former star
investment banker at Citigroup Inc. and adviser to Saudi Arabia's
sovereign investment fund. Mr. Klein's Churchill Capital Corp. has
created several SPACs, including one that merged with health-care
company MultiPlan Inc. in an $11 billion deal last summer.
Churchill IV raised $2 billion in July, making it one of the
largest SPACs ever, and began looking for a target company with
which to merge.
In December, The Wall Street Journal reported the company was
making a bid for DirecTV, a unit of AT&T Inc. Churchill's
stock, which had been hovering around $10 per unit since it went
public at that level, rose 0.6% for the day.
On Jan. 11, Bloomberg News reported Churchill was in talks to
merge with Lucid, and Churchill's stock soared 50% to $15. Lucid is
backed by $1 billion from Saudi Arabia's Public Investment Fund and
is further along in development than many young rivals in the
electric-vehicle space, with plans to start producing cars later
this year. Little is known about the terms of any potential deal or
Lucid's finances, information that would normally be crucial to
assessing how a combination should affect Churchill's stock.
The report spurred users on Reddit, Twitter Inc. and the finance
social-media platform StockTwits to point out apparent connections
between Churchill and Lucid. There are some factual commonalities,
such as an executive who worked with both companies. Other possible
links have been more tenuous, and in some instances inspired
real-world sleuthing.
One online poster noted a private jet was going on a multi-leg
trip from San Jose, Calif., to Phoenix, to Teterboro airport near
New York City -- all places with operations for Lucid or Churchill.
The observation spawned speculation on Twitter and Reddit that the
jet was ferrying executives involved in an imminent deal. One user
on StockTwits drove to Teterboro and waited for two hours,
photographing the jet upon landing. The user, who declined to be
named, said he didn't think the jet was connected, as it appeared
to be a family exiting the aircraft.
The stock soared as high as $27 in January before surging again
Tuesday to close above $32. Trading last month was halted multiple
times amid volatility.
Buyers include Reddit users like Fred Rosa.
Mr. Rosa, a 21-year-old based in Amsterdam, recently finished
college and has been investing for about six months on the side,
finding he could make far more trading individual stocks than index
funds.
He found out about Churchill, which has the ticker CCIV, by
reading a channel on Reddit -- a so-called subreddit -- devoted to
SPACs.
"I just opened Reddit one day and literally every comment on the
SPAC subreddit was CCIV," he said. He knew he was buying on
speculation, he said, but "the way it was being framed at the time
was it was the trade of a lifetime."
As days ticked by without an announcement, he grew nervous.
Perhaps the commenters were wrong, he thought, realizing he could
lose a lot of money if a deal didn't materialize. He sold, taking a
roughly $950 profit on the $3,500 he put in.
"This is a meme market," he said. "That is just how things are
right now."
--Maureen Farrell contributed to this article.
Write to Eliot Brown at eliot.brown@wsj.com
(END) Dow Jones Newswires
February 03, 2021 11:04 ET (16:04 GMT)
Copyright (c) 2021 Dow Jones & Company, Inc.
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