The Only Thing Certain About the Merger Between Microvast and Tuscan Holdings Corp. (THCB) Is That Nothing Is Certain

Rohail Saleem

This is not investment advice. The author has no position in any of the stocks mentioned. has a disclosure and ethics policy.

Microvast, a leading provider of next-generation battery technologies for commercial and specialty-use electric vehicles, has been the subject of relentless rumors in the SPAC circle over the past few weeks as the company continues to negotiate a merger with the Special Purpose Acquisition Company, Tuscan Holdings Corp. (NASDAQ:THCB).

As we detailed in our previous post, Microvast and Tuscan Holdings have already signed a Letter of Intent (LOI) to merge. This step is a crucial precursor to a formal Definitive Agreement (DA). Contrary to consensus expectations, this DA has not yet materialized, giving rise to substantial consternation on the part of the SPAC’s shareholders. Above all else, the market hates uncertainty, and this merger has bucketloads of that. It is, therefore, hardly surprising that the stock has endured significant correction recently. As an illustration, after hitting a peak closing price of $18.97 on the 28th of December, the stock has plummeted by over 20 percent. Currently, it is trading at the $15 handle.

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Now, by all accounts, Microvast and Tuscan Holdings continue to negotiate. This is, of course, a net positive for investors. In this murky environment though, yesterday’s announcement by Chamath Palihapitiya – a veritable authority in the SPAC sphere – has given rise to much speculation. To wit, Mr. Palihapitiya tweeted that he was working on a new climate-friendly PIPE investment:

He then went on to elaborate the areas of interest for his PIPE investment:

As is evident from the thread above, Microvast meets the stated criteria. A number of users on Twitter and Reddit extrapolated from this development that Tuscan Holdings now stood a fair chance of receiving Mr. Palihapitiya’s investment. The rationale behind this hypothesis is a sound one. After all, with only $256 million in cash at the end of 2020, Tuscan Holdings would only acquire a 13 percent stake in Microvast, provided that the battery manufacturer was valued at around $2 billion. At a higher valuation, the SPAC’s stake would shrink further. Consequently, the proponents of this hypothesis assert that the main disagreement that is hindering a formal DA is Tuscan Holdings’ incapacity to purchase a higher stake in Microvast, thereby necessitating further PIPE investment. However, there is a lacuna in this line of reasoning. To wit, we do not know at present the precise reason for a holdup. While the hindrance stated above may end up being true, a completely different one is also equally likely. Consequently, the entire exercise remains mere conjecture at the moment. Given the stakes involved, investors should continue to exercise caution and wait for a formal communication from either of the two negotiating parties.

Readers should note that a formal merger DA between Microvast and Tuscan Holdings is still our base case scenario. After all, Tuscan now has until the end of April 2021 to negotiate a deal after having secured an extension from its shareholders in December. Therefore, wait and see should be the mantra of choice for the SPAC’s investors.

For the uninitiated, Microvast utilizes comprehensive vertical integration that ranges from the battery chemistry aspect (cathode, anode, electrolyte, and separator) to battery packs. The most appealing feature of Microvast batteries is their combination of fast charging and long cycle life with enhanced safety. As an illustration, Microvast’s battery systems can be fully charged at the 6C rate, corresponding to a 100 percent charge in 10 minutes.

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