In a last-ditch effort to save its contract with Taiwanese manufacturer Foxconn and lift itself out of the penny stock doldrums, electric vehicle company Lordstown Motors has announced that it will execute a reverse stock split.
After the news broke, shares dropped to $0.28, a drop of nearly 3.7%.
Lordstown announced in a filing with the SEC on Tuesday that its board of directors had approved a reverse stock split of 1:15 at the company’s shareholder meeting on May 22. When the markets open on Wednesday, each group of 15 shares will be consolidated into one share of common stock issued and outstanding for Lordstown. No fractional shares will be issued with the reverse stock split, but the corporation has stated that it will modify all existing equity-based awards.
In a regulatory document made in early May, Lordstown warned investors that Foxconn’s threat to withdraw from a crucial funding transaction could lead the company to declare bankruptcy. Foxconn has already committed to pay $47.3 million to acquire roughly 10% of Lordstown’s common stock. Foxconn paid $230 million for the 6.2-million-square-foot facility in Lordstown, Ohio in late 2021.
Lordstown Motors in Danger of Being Delisted from Nasdaq
Nasdaq threatened to delist Lordstown after its stock price dropped below $1, causing the current controversy. On April 21, Foxconn notified Lordstown in writing that the automaker was in violation of the investment agreement because Lordstown’s stock price had been less than $1 for 30 consecutive trading days and was in danger of being delisted from the Nasdaq. If the breach is not remedied within 30 days, Foxconn threatened to cancel the investment agreement.
In its first-quarter earnings report, the EV startup that went public through a SPAC merger announced that it would likely stop production of its Endurance pickup truck “in the near future” due to repeated production delays, the lack of a strategic partner for the car, and the minimal ability to raise capital in the current market environment.
If Foxconn’s stock price stays over $1 per share for 10 consecutive trading days and Nasdaq judges that the offer price condition has been satisfied, Lordstown hinted Tuesday that Foxconn might be tempted to stick with the arrangement. Thus, it “may satisfy Foxconn’s (incorrect) interpretation of the closing condition and cause Foxconn to close the transaction,” Lordstown stated in a regulatory filing.
According to a regulatory filing, as of April 30 Lordstown Motors had only $165 million in liquid assets.
Since their initial public offerings (IPOs), many mobility businesses formed through SPAC mergers have seen their share values fall below $1, prompting them to consider reverse stock splits. In the past few months, reverse stock splits have been announced by micro mobility startup Helbiz, shared scooter company Bird, and electric vehicle company Arrival.
A reverse stock split is a corporate action in which a company reduces the number of its outstanding shares by combining multiple shares into one. This can be done to increase the price of the company’s stock and make it more attractive to investors.
Lordstown Motors did a reverse stock split in an attempt to save its deal with Foxconn. The deal was in jeopardy because Lordstown’s stock price had fallen below $1, which is the minimum price for a stock to be listed on the Nasdaq exchange. A reverse stock split would increase the price of Lordstown’s stock and make it more likely that Foxconn would complete the deal.