A bunch of amateurs getting memed into gambling their savings away is probably one of the most destructive things that's happened on reddit, and that's saying quite a lot.

well done, faceless mob

[deleted]

This is the consequence of low interest rates, people take on higher and higher risks to chase fleeting returns. CCIV is a SPAC, not even a real company but basically a pot that promises to use the money it has to buy shares in private equity (because public stock returns are too low). Which private equity? Well nobody actually knows apart from some vague gesturings in general directions..

Each share of the SPAC will correspond to $10 of private equity, but people thought it would be an up and coming electric car company so they were paying up to $50 to buy $10 worth of private equity, before the deal had even been done.

Ask yourself, if you were the private equity firm and the SPAC was trading at $50 for $10 of your worth would you really sell yourself at $10 a share rather than say $25 (because the public markets are saying you are worth $50 a share, there are drawbacks to going public so you might be willing to accept less than $50 per share if you can stay private but would you be willing to go down to $10???) ? That is just stupid, it is basically you losing 80% of the value of your shares because you sold privately rather than going public. The people on the other end of this deal aren't stupid, and now the idiotic public who probably don't even understand what a SPAC is are suffering.

Is a SPAC the equivalency of a brown paper bag "grab bag" of comics or books you find at bookstores sometimes? You have no idea what's in them but your kid is too dumb to pass on that "$5 for Five Comicbooks" deal.

Sort of. With a SPAC you are basically betting that the people in charge of running the thing are actually able to identify and make a deal with high growth private companies that want to raise money but don't want to go public.

It's effectively a way to get around SEC rules on being an "Accredited Investor" (who can invest in private equity) meant to protect idiots who don't understand finance from throwing all their money away on stuff that is worthless. No surprise that when you do this the idiots who understand nothing about finance end up losing all their money.

Let them throw their money away. Survival of the fittest.

Also here is Matt Levine yesterday about this very same company. He explains it better than I ever could:

SPAC SPAC SPAC A special purpose acquisition company is a blank-check company that raises money from investors in an initial public offering, puts the money in a pot, and uses the pot to buy a stake in some existing private company, merging with that company (in a “de-SPAC merger”) and taking it public.

Traditionally the SPAC does its IPO at $10 per share; if it sells 100 million shares then it will have $1 billion in its pot. It will go out and find a private company and negotiate with it, and the negotiations will be over how big a stake the SPAC gets for its money. The SPAC has a billion dollars; it will go to the private company and say, for instance, “we think you are a $4 billion company, if we give you $1 billion you’ll be a $5 billion company, so our $1 billion should buy 20% of your stock, so after we merge you should have 500 million shares outstanding of which our SPAC shareholders should own 100 million.”[1] And the company says “no we are a $9 billion company, if you give us $1 billion we’ll be a $10 billion company, so your $1 billion should buy 10% of our stock, so after we merge we’ll have 1 billion shares outstanding of which your SPAC shareholders should own 100 million.” And then they go from there and hopefully find a compromise price everyone can live with.

And there will usually be a PIPE, a private investment in public equity, alongside the de-SPAC merger deal: Some big institutional investors will put in new money to buy shares directly, so that the newly public company raises money not only from the SPAC but also from other big institutions. So perhaps the final deal will be a $6 billion pre-money valuation plus $1 billion from the SPAC and $1 billion from PIPE investors, for a total valuation of $8 billion; SPAC investors will get about 12.5% of the company (one-eighth, the amount of cash they put in divided by the total valuation), the PIPE investors will get another 12.5%, and the existing private shareholders will keep the other 75%.

Then they will announce the deal and hopefully the stock—the SPAC stock, which is already public—will trade up. The deal will be well received; investors will think the company is worth more than the agreed valuation. Perhaps the market will say the company is worth $10 billion, which means that the SPAC shareholders’ 12.5% stake is worth $1.25 billion, which means that each $10 SPAC share should trade to $12.50.

This is the same basic mechanism as a traditional initial public offering. The people who agree to buy a private company’s shares at the moment it becomes public are taking a risk and doing the private company a favor; they expect to be able to buy those shares at a bit of a discount. After the company goes public—in an IPO or a de-SPAC merger—the stock should trade up, to reward the initial purchasers. In an IPO this is called the “IPO pop,” and it is much criticized by venture capitalists. In a SPAC this phenomenon doesn’t exactly have a name, but it obviously exists and is the basis for the current SPAC mania. If investors didn’t think “buying SPAC stock at $10 gives us a ticket to get some cool private company at a discount,” they wouldn’t be excitedly buying SPAC stocks; there would not be a dozen SPACs going public each day, and multiple exchange-traded funds competing to package SPACs for investors, and generally a ton of excitement for SPACs. (Of course there is no guarantee of anything; some IPOs open below their IPO price, and some SPACs trade down as investors are disappointed by the deals they make.[2] But the usual expectation, at least for hot companies in the current hot market, is for these things to trade up initially.)

The thing about SPACs, though, is that shares in the SPAC—the pot of money—trade on the stock exchange before the merger is announced. If you are aware of the basic SPAC-pop dynamic—if you have watched other high-profile SPAC deals get done and their stocks trade up—you might look at a pre-merger SPAC of a well-known sponsor and say “well, this SPAC is just a pot of money, and I don’t know what company it is going to merge with, but it’s going to merge with some company, and it will get a good price, so after the merger these shares will be worth $12.50 or something.” And so you might be willing to pay, say, $10.50 or $11 or $12 or $12.49 for the SPAC’s shares today, even though today they just represent a claim on $10 worth of cash. You can pre-purchase the “SPAC pop,” as it were.

You could take this logic further. You could say: “Well, this SPAC is just a pot of money, and I don’t know what company it is going to merge with, but I suspect it’s going to be a hot electric-vehicle company, and hot electric-vehicle companies have particularly obscene SPAC pops because the market absolutely loves SPACs and EVs right now, so I think that the sponsor will pay $10 for shares that will trade up to $50, so I am going to pay $49.99 for them now.” You’ll pay $49.99 for a pot of cash worth $10. And, to be clear, this can be a perfectly rational trade: You’re not just buying a $10 pot of cash for $49.99; you’re also buying the high likelihood that that pot of cash will be used to buy underpriced shares of a hot private electric-vehicle company. The right SPAC can do that, but you can’t do that with $10 in your checking account, so the $10 in the SPAC’s hands really is worth more than $10.

But what is the electric-vehicle company to make of all this? A SPAC sponsor comes to the EV company and says “we’ll give you $10 per share for your stock, let’s negotiate about how much stock that will buy us.” And then they debate valuations; the company argues it is worth a lot, while the sponsor says it’s worth less. But at some point the company says to the sponsor: “Look, you’re asking to buy our stock at $10 per share, to give it to your shareholders, who paid you $10 per share for it. But I can look on the stock exchange and see that your stock is trading at $50 per share right now. I know that, to avoid disappointing your shareholders, you have to get back stock worth $50 for the $10 you put in, and I don’t want to sell you stock at an 80% discount.” It is a fair objection. If the EV company sells shares worth, say, $25 to the SPAC, and gets back $10 per share, then (1) the EV company is getting kind of ripped off (it’s selling $25 stock for $10), but (2) the SPAC shareholders are also getting kind of ripped off (they bought $25 stock for $50). The SPAC shareholders have only themselves to blame, really—they’re the ones who paid $50 for a $10 stake in a pot of cash—but it is not a great dynamic.

Anyway:

Shares of the blank-check firm combining with electric-vehicle startup Lucid Motors Inc. plunged in U.S. trading after confirming the biggest SPAC merger yet to cash in on investor enthusiasm for battery-powered cars.

Churchill Capital Corp IV, the special-purpose acquisition company run by financier Michael Klein, fell as much as 46% on Tuesday after confirming its merger with Lucid. The deal will generate about $4.4 billion in cash for the 14-year-old carmaker, which announced production of its debut model will be delayed to the second half of this year.

The slump follows a dramatic 472% run-up in the shares since Bloomberg first reported on Jan. 11 that Lucid and Churchill were in talks. Lucid has shied away from comparisons to market leader Tesla Inc., but the public listing at a pro-forma equity value of $24 billion positions it to compete for a slice of what’s expected to become a rapidly growing market for EVs. It plans to use the newly acquired funds to bring vehicles to market and expand its factory in Casa Grande, Arizona.

Lucid Motors Inc. is merging with a blank-check company run by financier Michael Klein that values the combined entity at a pro-forma equity value of $24 billion, the biggest in a series of deals involving electric-vehicle startups cashing in on investor appetite for battery-powered cars. …

The reverse-merger represents the largest injection of capital into Lucid since Saudi Arabia’s Public Investment Fund invested more than $1 billion in 2018. The agreement included a $2.5 billion private placement in public equity, or PIPE, the largest of its kind on record for a deal with a special-purpose acquisition company. It was led by existing investor PIF as well as BlackRock, Fidelity Management, Franklin Templeton, Neuberger Berman, Wellington Management and Winslow Capital, according to a joint statement from Lucid and Churchill Capital Corp IV, the acquisition company.

The placement sold at $15 a share -- a 50% premium to Churchill’s net asset value -- which translates into about $24 billion in pro-forma equity value, the companies said. The combined company has a transaction equity value of $11.8 billion.

What a bizarre deal. Lucid is selling shares to the Churchill SPAC at $10 per share. It’s selling shares to the PIPE investors at $15 per share. Those shares are worth, say, $35, roughly where the SPAC was trading at 10 a.m. today, after the deal announcement. Lucid is selling shares at a huge discount to the PIPE investors, and at an even huger discount to the SPAC investors.[3] If a hot tech company did an IPO at $10 per share and its stock immediately traded up to $35, venture capitalists would get on Twitter to say that Wall Street is ripping off startups, that the IPO system is irreparably broken, that this two hundred fifty percent underpricing is evidence of an evil conspiracy. Here though it’s just how SPACs work, and everyone loves SPACs.

Meanwhile, though, the SPAC investors were expecting to get back shares worth $57.37 (the closing price yesterday), so getting back shares worth $35 is a huge disappointment.

Here are the press release, Lucid’s and Churchill’s investor deck for the deal, and the 8-K. The transaction structure is on page 62 of the deck; page 63 explains that the deal represents an “Attractive Entry Valuation — Significant Discount to Other Entrants.” What that means is that the deal values Lucid at 5.3 times estimated 2022 revenues (2.1 times estimated 2023 revenues), at $10 per share, which is lower than Tesla (12.9x), Fisker, Nio and other hot electric-vehicle companies. (The revenue projections are on page 67, and they plan on a lot of growth, from $97 million in 2021 to $2.2 billion in 2022; the deal values Lucid at 121.1x estimated 2021 revenue.) If you are buying Lucid at $10 per share—as, I guess, the SPAC sponsors are—then that’s the right valuation. If you’re buying at $15 per share—as the PIPE investors are—then you’re paying more like 7.9x (3.2x) estimated 2022 (2023) revenue. If you’re buying at $35 per share—as buyers of SPAC shares were this morning—then it’s 18.5x (7.4x). If you bought at $57.37 per share—as buyers of the SPAC did yesterday, before the deal was announced—then you paid about 30.4x estimated 2022 revenue, a much higher multiple than any of the competitors.

Lucid is selling shares to the SPAC at a reasonable valuation (if you believe the projections). But the SPAC shareholders are buying shares at a much higher valuation. There is just a huge gap here, a gap between what the SPAC shareholders pay and what the company receives. The extra money goes to people who bought SPAC shares earlier—at $10—and then sold them as the price soared before the deal was announced. A ton of value has been extracted from the system, money that was effectively paid by Lucid’s new shareholders but won’t go to Lucid.

Perhaps this is more efficient than a traditional IPO? Seems weird, but it accomplishes one crucial thing for Lucid, which is that it allows Lucid to go public based on projected 2023 revenue. Normal IPOs are focused on audited financial statements covering years that have already happened; future projections are strongly discouraged. Meanwhile SPACs are allowed to include projections, and in fact Lucid’s deck doesn’t include any historical financials; the “Summary P&L” slide (page 67) starts with estimated 2021 numbers. It’s hard to do a regular IPO for a car company that has never sold a car, but you can do a SPAC. But it will cost you.

I'll need to take a closer look at this thanks

zoz

zle

zozzle

(because public stock returns are too low)

Except for the thrill seekers, how tf is 25% YoY, even with a massive dump from Covid, too low? If anything it feels like the shit interest rates may be pushing more and more normies to stocks just to keep up with inflation.

Stock market returns are better measured in the amount of dividends they give rather than strict price inflation. Currently the price of US stocks compared to the earnings of the companies they represent is at an all time high (and historically stock markets with high price to earning ratios have underperformed until the ratio gets back into line with the long term average). Basically the money printer has been going BRRRRR which leads to too much $ chasing stocks, thus pushing prices up. All the current jumps are doing is pushing the expected 7% yearly long term growth forward to the present, hence prices are expected to rise less than in the near future (unless we get even more BRRRRRR). Taking this in mind the expected returns in the next few years are now a lot less than the expected long term 7%, hence why money is chasing riskier private equity in the hope of finding undervalued stuff to buy.

Ah lovely, so dotcom 2 electric boogaloo and SPY puts; got it.

Nothing I say is financial advice. If you buy SPY puts and lose all your money it is your fault and we will all laugh at you for it.

I'm not even sure what your point is. Yeah I'd rather sleep with a dakimakura of my waifu Renge-chan than with some random 3D slut but that doesn't mean I'm desperate, it's the opposite, it implies that I have standards.

Snapshots:

1. I feel like ending it all tonight. - archive.org, archive.today*

I am just a simple bot, *not** a moderator of this subreddit* | bot subreddit | contact the maintainers

r\options

👌

This is why I don't buy stock. I absolutely suck at predicting the future. So I am not even going to bother with it.

I really wish people would be harsher to lame attention seeking posts like this