General Motors Co. (GM) said Tuesday, Sept. 8, that it received an 11% stake in electric truck company Nikola Corp. (NKLA) as part of a strategic partnership that also lets the Detroit-based automaker nominate a board member.
As part of the agreement, GM will receive a $2 billion equity stake in Nikola. In exchange, GM agreed to engineer and manufacture Nikola’s Badger electric pickup truck, which will be offered with either battery power or fuel cell power.
The Badger is expected to be in production by the end of 2022. As part of the agreement, GM also agreed to provide fuel cells globally, not including Europe, to Nikola for heavy duty trucks. The Badger will used GM’s Ultium battery technology.
“The deal is an endorsement of GM’s technology for electric batteries,” said one analyst following the transaction. “Sounds like a good transaction for both sides.”
Nikola and GM shares jumped 28% and 6%, respectively, Tuesday morning on the news.
According to a securities filing, GM agreed not to propose a combination or merger with Nikola or to solicit proxies for voting securities of the company for roughly three years, if other conditions are met. The provision is likely intended to prohibit GM from seeking to acquire Nikola, either through an unsolicited offer combined with a director contest. Nikola has a classified board.
GM has a $43 billion market capitalization and Nikola has a $13.5 billion market capitalization. Nikola went public earlier this year via a SPAC merger.
The analyst added that it was unlikely that GM had been considering an acquisition of Nikola prior to the partnership announcement.
One Nikola director has a strong relationship with GM and likely helped drive the deal. Steve Girsky, a former GM vice chairman, led the creation of the SPAC, VectorIQ Acquisition Corp., which took Nikola public in June.
According to relationship mapping service BoardEx, a sister company to The Deal, Girsky was vice chairman at GM between 2010 and 2011 and a director at the auto giant between 2014 and 2016. He currently is a director at Nikola.
The analyst added that the agreement could give a boost to GM, adding that generally the market “doesn’t seem to like the fact that GM is a leader in battery technology.” The analyst noted that Tesla Inc. (TSLA) has a $330 billion market capitalization. “GM is on par with Tesla in terms of battery technology,” said the analyst.
In addition, GM for roughly one year will be restricted from transferring its Nikola shares. After that GM will be permitted to transfer or sell a certain amount of shares periodically.
According to report last month, GM had been considering whether to spin off its electric-vehicle manufacturing operations into a stand-alone entity. However, the analyst said that there are lots of obstacles to a spinoff, including the GM workers union and manufacturing considerations. He notes that it would be easier – and more plausible – for GM to spin off its battery manufacturing unit.
Nikola also has an activist investor in its midst. ValueAct Capital LP founder Jeff Ubben recently shifted a 5.6% stake the activist fund revealed in June to his new ESG-focused investment vehicle, Inclusive Capital Partners. That fund is set up to focus on socially responsible investing.
Ubben holds a seat on Delaware-incorporated Nikola’s 12-person board, which will likely coon include a GM member. In a filing, Inclusive said it has had discussions with the company about its business, management, board composition, operations and overall business strategy.
GM signed a deal in 2018 to collaborate on batteries for electric vehicles, with GM agreeing to sell battery packs using its Ultium technology to Honda.
Morgan Stanley’s Will Dotson, Roksolana Sierant and Ben Teasdale are advising GM on the transaction. Pillsbury Winthrop Shaw Pittman LLP’s Stanley Pierson and Shaalu Mehra advised Nikola on the deal.
Nikola CFO Kim Brady and Chief Legal Officer Britton Worthen advised on the deal. Nikola did not retain bankers to advise on the agreement.
Paul, Weiss, Rifkind, Wharton & Garrison LLP partners Steven Williams and Scott Barshay advised GM on the transaction.
Williams and Barshay have worked on a number of activist situations in the past. The duo advised Automatic Data Processing (ADP) in its defense against Pershing Square’s Bill Ackman. Barshay also advised BHP Billiton in defense against Elliott Management Corp. and Emerson Electric Co. (EMR) in response to a D.E. Shaw & Co. LP campaign.
—David Marcus and Paul Springer contributed to this report