One of the most prominent Israeli examples of the SPAC merger trend that has now faded on Wall Street is autotech company REE Automotive (Nasdaq: REE), which underwent such a merger in the summer of 2021 at a valuation of $3.1 billion, and is now traded at a market cap of just $38 million, representing a decline of 99%. Since the share price is below $1 (it closed yesterday at $0.1518), REE is at risk of being delisted from Nasdaq, and it seeks to prevent this through a technical maneuver.
REE plans a reverse stock split, and seeks approval from its shareholders to consolidate every 20-30 shares in the company into a single share. At the current price level, that would mean a price per share of $3-4.5, well above the minimum required for the stock to continue to be listed on Nasdaq.
REE Automotive, headed by Daniel Barel, who founded the company together with its CTO Ahishay Sardes, has developed a modular platform for electric vehicles that incorporates all the propulsion, steering and control systems. It recorded its first revenue this year, close to $1 million in the first half, for which it posted a loss of $55 million.
Last November, the company received a warning letter from Nasdaq management for its failure to meet the threshold conditions for a listing. It was initially given 180 days to comply with the conditions, until May 2023. When it failed to do so, it received a 180-day extension, until November 6. Should it still not be compliant by that date, its stock is liable to be delisted and to be transferred to the Over the Counter market, where trading volumes are lower and where the stocks traded suffer from a negative image.
Advantages and disadvantages
A reverse stock split does not affect shareholders’ holdings: the percentages remain the same, and nor is the market cap affected.
An advantage of a reverse split is that it could put REE on the radar of investment institutions, which are generally uninterested in stocks traded below a certain price level. But companies that carry out reverse splits also usually have to demonstrate a change in their business momentum before the market will take interest.
On the other hand, a prominent disadvantage of a reverse split is a reduction in the stock’s liquidity. Because there are fewer floating shares, the share price can become volatile.
Over the years, several Israeli companies have had to carry out reverse stock splits in order to pass the minimum price threshold for being traded in New York. We have already seen it happen among the companies that, like REE, were floated on Wall Street through a SPAC merger: digital insurance company Hippo Holdings (NYSE: HIPO), which underwent a SPAC merger in 2021 at a valuation of $5 billion, deteriorated in 2022 to a market cap of under $500 million, with its share price under $1.
The company consolidated each 25 shares in it into one share, which brought it back into compliance with the minimum price threshold, but did not change the trend in its share price. Hippo’s shares closed yesterday at $8.89, giving the company a market cap of just $210 million.
Published by Globes, Israel business news - en.globes.co.il - on September 27, 2023.
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