The Lucid Group (NASDAQ:LCID) announced that it will redeem all outstanding warrants at a price of $0.01 per Warrant at 5 pm EST October 8, and the warrants may be exercised on a cashless basis until then.
Doing this on a cashless basis means that warrantholders will not put out $11.50 and receive Class A shares proportionate to their warrant holdings. Instead, warrantholders are to pay the $11.50 per warrant exercise price by surrendering 0.5542 of a Class A share per warrant. In doing so, each exercised warrant will provide 0.4458 of a Class A share.
This ratio was determined in accordance with the warrant agreement and was based on the difference between the average share sale price for the two weeks prior to September 2 – $20.751 – and the original $11.50 exercise price.
The market has reacted to the news accordingly with Lucid slipping -3.6% in afternoon trading. Lucid warrants have similarly traded up about 1% to $8.50, just under the value of each warrant exercised in this cashless basis at the company’s current share price.
Lucid Motors has been the buzziest deal of the year since even before it announced its $11.75 billion combination with Churchill IV in February. Under the terms of the warrant agreement, Lucid was allowed to call its warrants once the company’s stock traded at or above $18 for 20 of 30 consecutive trading days.
And while Lucid could have called their warrants as early as August 26th (once the registration statement was declared effective and combination closing was more than 30 days prior), the PIPE investors were locked-up until September 1st. As a result, Lucid Motors traded down ~ 31% on that date as PIPE investors came off lock-up and ahead of the warrant call. And since the “20 out of 30 trading-day period” ends on the third trading day prior to when notice of redemption is given (Sept. 2), and since LCID would have certainly wanted to include Sept. 1st in it’s average sales price calculation for it’s ratio, calling the warrants today, September 8th, makes perfect sense. Warrantholders might not like it, but LCID wanted to minimize dilution.