One of the things I love about the stock market is the ever evolving nature of it. From the old-school trading pits to electronic brokering. From the boom of tech IPOs to newly-created special purpose acquisition companies (SPACs). Churchill Capital recently listed Churchill Capital IV (NYSE:CCIV) as one of these newly formed SPACs that are becoming more common in the market. Given that the Churchill Capital IV share price rallied 32% yesterday on merger news, it’s definitely something that warrants closer inspection.
What’s a SPAC?
Churchill Capital was founded by Michael Klein, a successful businessman in his own right. The company has listed four separate SPACs. The particular one I’m referring to is fourth one, hence the ‘IV’ after the company name.
SPACs have been around for a while, but only recently has the market evolved into generating large demand for these types of listed companies. A SPAC is essentially a shell company that doesn’t have any operations to begin with. Its aim is to use the money it raises via going public to buy and merge with other companies. I think of it as an empty plate, onto which I then add different types of food to enjoy.
The forming of each of these Churchill Capital SPACs has raised hundreds of millions of dollars, even though they didn’t technically own anything at inception. Most SPACs, like Churchill Capital IV, raise money based on the reputation of the founder.
Why did Churchill Capital spike yesterday?
This is where things get even more interesting. Since the start of the year, rumours have been spreading regarding the potential merger of CCIV with Lucid Motors. The Churchill Capital IV share price jumped from circa $10 to $31 in a month on these rumours. For the most part since the public listing, the share price had traded just below $10.
Yesterday, Reuters published an article that suggested CCIV is looking to raise another $1bn, which would be enough to buy Lucid Motors. Although nothing is yet confirmed, investors are clearly putting two and two together. As a result, the share price rocketed higher yesterday. After all, if this deal is successful, the value of the business (including Lucid) would be higher than just the value of the SPAC itself.
Lucid is a US-based electric car company. There have been suggestions that it could be a rival to Tesla in the future. The growth of the Tesla share price and the electric car market in general has been well reported on. So if Lucid Motors could take a decent chunk of market share in the future, the Churchill Capital IV share price could accelerate further. But of course, it might not!
As a UK investor, I can buy into CCIV as a US stock trading on the NYSE. There are dozens of SPACs listed on the LSE here in the UK too. However, the market is nowhere near as active as in the US. SPACs like CCIV are different to a regular company and so need to be treated with caution. As such, I need to do even more digging before I’m comfortable investing, especially as I don’t buy shares based on rumours.
