Nikola (NKLA) Share Price Swoon Earlier This Week Was Caused by Worthington Liquidating 25% of Its Stake

Jul 9, 2020
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Nikola (NASDAQ:NKLA) investors watched in horror as the stock plummeted by 17 percent on the 6th of July followed by another 14 percent plunge on the 7th of July. While the share price rebounded by 34 percent on Wednesday, investor consternation remained. Well, now we know the cause of the historic price crash.

According to a filing with the U.S. Securities and Exchange Commission (SEC), Worthington Industries (NYSE:WOR) unloaded 25 percent of its stake in Nikola Corporation on the 6th and 7th of July. As per the details, Worthington liquidated 5 million Nikola shares, raising a cumulative sum of $237,875,856 in the open market through this selling activity on Monday and Tuesday.

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The filing notes:

“On July 8, 2020, Worthington Industries, Inc., together with two of its subsidiaries (the “Company”), filed a Schedule 13D/A with respect to its ownership of common stock of Nikola Corporation (“Nikola”) reporting that the Company had sold an aggregate of 5,000,000 shares of Nikola common stock for an aggregate net amount of $237,875,856 in open market transactions from July 6 to July 7, 2020. The proceeds of the sale are subject to tax. After the transactions, the Company now owns 14,048,020 shares of Nikola common stock.”

It is apt to mention here that Worthington still retains around 14 million Nikola shares, translating to a cumulative stake of 3.88 percent based on the 361 million total outstanding Nikola shares.

It should be noted that Trevor Milton, the Executive Chairman of Nikola Corporation, hinted at a large-scale liquidation when he commented on the stock price action earlier this week. In a now-deleted tweet, Mr. Milton claimed:

Nikola

We noted in our post on Monday that two factors seem to be weighing on Nikola’s stock price. The first dampener is the somewhat underwhelming nature of the Badger electric pickup truck’s initial reservation numbers, with Nikola tracking approximately 1,500 reservations per day. For comparison, Tesla’s Cybertruck garnered 146,000 reservations within 48 hours of the facility’s debut.

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However, a much more severe dampener is the impending sale of shares held by Nikola’s PIPE investors and the uncertainty surrounding the timeline of this liquidation.

As per our recent commentary on this subject, outstanding SPAC warrants to purchase an aggregate of 23,890,000 shares became exercisable on the 3rd of July 2020. However, as the 3rd of July was a public holiday in the United States, the effective date from which these warrants could be exercised was the 6th of July and the window remains valid for five years. In a crucial caveat, we highlighted that the SEC needs to approve any liquidation related to these warrants.

Despite the overhang of the impending liquidation by PIPE investors, Nikola shares surged yesterday as J.P. Morgan (NYSE:JPM) adopted a bullish tone with respect to the company’s long-term potential. The Wall Street giant observed in an investment note yesterday:

“We expect a number of developments out of Nikola soon, including the announcement of an OEM partner for the Badger truck, an H2 station deployment plan for the UK, potentially accelerated implementation plans for the FCEL truck in the U.S. California’s CARB ACT ruling could lead to accelerated adoption of H2 infrastructure on the West Coast, beyond Nikola’s original plan. We think the stock will react favorably to any developments that shorten and/or de-risk the BEV and FCEL truck implementation plans."

Consequently, J.P. Morgan pegged a 2021 year-end stock price target of $45 for Nikola shares, corresponding to forward multiple of 30x the 2027 EBITDA estimates. Previously, J.P. Morgan has stated that Nikola could earn $14 billion in revenue and $1.5 billion to $2.0 billion in EBITDA by 2027.

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