For most of 2021, we've watched Churchill Capital IV (CCIV) court Lucid Motors. Every day a new rumor flies that a deal between the companies is pending in which Lucid will come public via SPAC (Special Purpose Acquisition Company) CCIV. There are Bloomberg screenshots floating around Twitter (TWTR) constantly. Links of board members and business addresses being uncovered on the internet. Whether they mean anything or not is subjective. The world of finance is an incestuous one. I know more than my fair share of individuals who serve on multiple boards but those companies never do business together. It could be coincidence or perhaps it helps facilitate a deal in the end. Either way, here we are after another long weekend and no deal between the two despite overwhelming social media sentiment the past few days that it was a sure thing.
Lucid is an electric vehicle (EV) car manufacturer viewed as a possible threat to Tesla (TSLA) . The legitimacy of the claims isn't based on any actual business yet but merely on the appeal of the Lucid Air. That excitement has driven CCIV, a blank check company consisting of nothing more than cash, from $10 to $40. Remember, the CCIV trust only has approximately $10 per share worth of cash. No deal and this stock comes plummeting back to earth. If we get a deal, it could trade at $20 (doubtful), $40 (probably not), $50 (maybe) or much higher (probably on the initial excitement). Still, buying CCIV comes with plenty of downside risk and a lot of unknowns.
The best play here may be the pin action, buying the other Churchill Capital SPACs. Two units, consisting of one share plus one-fifth of a warrant, hit the market late last week. Both units are trading under $11.50, a price much closer to their cash value than many other SPACs out there. Granted these are newer issues so there may be some time before they actually find a private company to buy. That requires patience, something challenging to many SPAC traders over the past few months. The number of deals has been too great to ignore for some traders. It makes sitting and waiting, potentially quarters for an announcement frustrating when others are popping off left and right.
If CCIV lands Lucid, there's a good chance we'll see a rush of investors coming into the other Churchill SPACs much like we witnessed with Social Capital Hedosophia Holdings SPACs founded by Chamath Palihapitiya. Right now, you can't find an unwed SPAC of his for less than a 50% premium. There are another seven Chamath SPACs filed and headed our way. This should bring us tickers IPOG through IPOM with the only difference the last letter that have been progressing alphabetically. We have already seen IPOA through (IPOF) hit the market.
I think two opportunities emerge from this. Churchill SPACs are gaining more attention, so picking up Churchill Capital VI (CCVI.U) and Churchill Capital VII (CVII.U) offers an attractive risk-reward proposition. CCVI.U is currently trading around $11.50 while CVII.U is around $10.80. If they follow a similar path to the Social Capital SPACs, we could see shares trade in the $13 to $14 range on any Lucid announcement. If CCIV fails to buy Lucid, we don't anticipate much downside to CCVI.U or CVII.U. I'm a buyer and holder of both.
Additionally, when the new Social Capital Hedosophia Holdings SPACs hit the market, I would expect traders to go after those aggressively. If you can get in on the $10 IPO price, I wouldn't hesitate. While I'm not a big fan of chasing many SPACs beyond the $11.50 area out of the gate when they initially start trading, getting these under $12 has played out well. The risk-reward on a SPAC wide consideration isn't great but based on how the past Social Capital SPACs have performed, it's still pretty darn favorable.