Recently, I wrote an article discussing whether or not Churchill Capital LLC, the company that owns the General Motors operating headquarters, would be able to do a “deal” with Lucid Motors. In this regard, I noted that there are two potential scenarios here. First, the corporation could decide to acquire a controlling interest in Lucid Motors, or sell its shares of the company to a third party without needing to go through the red tape that goes along with a public offering. In either case, there are some significant issues that need to be addressed.
Under the first scenario, Churchill could become the controlling owner of Lucid Motors and therefore control the direction of the company in a way that it has not been able to do since the acquisition. In this scenario, the company would still carry on with its plan of building cars and continue to make profits from its American and Global brand names. But it would do so in a much smaller capacity.
Under the second scenario, Lucid Motors would become a substantially larger company with greater financial value. Therefore, shareholders of Churchill would have more shares available for a buyout, and overall control of the company would increase. Additionally, the company would have access to more advanced technologies, and international markets. However, all of these benefits come at a great cost to the American taxpayer. Specifically, Lucid Motors would be required to pay taxes on its U.S. assets, as well as pay U.S. taxes on its foreign profits.
In light of the second scenario, should the United States government to give its blessing for a Lucid Motors acquisition, then Churchill would be required to give up its ownership interest in the company. Specifically, this would occur if the United States government determines that the acquisition is in line with national security concerns. In this case, the shares of the American company would be offered to a qualified company that the U.S. determined to be able to successfully carry out the stated goal. The government could further stipulate that the new corporation continues to have a specified percentage of the company’s equity as a condition of the sale. This last condition is the most likely scenario because it could potentially prevent an American company from completely eliminating its own shares of the organization.
So, can I expect the company to continue to operate under its own name? If the American organization agrees to sell its shares to Lucid Motors, then the brand name of the company would effectively be transferred to the Chinese-based company. This is the main reason that the acquisition is considered to be a ‘private company’ within the eyes of U.S. tax laws. As such, no restrictions would apply to the company’s operations. It would be free to pursue its plans as it pleased, and invest in different markets if it so chooses.
On the other hand, a potential restriction on capital flow might apply to any future purchases of shares by the partners in the acquisition. This capital infusion method is often used by foreign companies looking to expand into the United States market. It allows them to purchase a significant number of shares from a company and absorb a great deal of the company’s overall value just so they can raise enough funds to do the same. A potential limitation on cash flow might prohibit the purchase of additional shares by the partner(s) in the deal and thus prevent the acquisition of additional capital.
Will Churchill Capital IV invest in Lucid Motors? Based on the purchase price of this company’s common stock, we estimate that the total cost of this transaction will be between approximately $70 million and seventy-five million. If the deal does not close based upon the valuation of the company’s stock at this point in time, the partners in the deal would still have obtained a significant portion of the company for their six-figure investment.
At face value, we believe this transaction would be attractive to any individual or small business investor seeking to obtain a foothold in the highly competitive markets currently experiencing record high volumes. Lucid Motors is in the early days of development and growth, but it has already attracted some high net worth individuals and businesses. If the company’s business model should prove to be successful, then the acquisition would represent a solid return for our investors. We are eager to find out if this deal closes and if so, what type of return we can expect on our investment.