Nikola's Reverse Split Passes Despite Retail Shareholder Opposition
Nikola announced today on their annual Shareholder Meeting, that Proposal 2, a proposal to approve a Reverse Stock Split, was approved with a majority of shares voted being voted in favor. There were 5 Proposals in total to be voted on including voting in Directors for the Board. All 9 proposed Directors were voted in for the Board and the 4 remaining Proposals were all passed, including the most prominent one, Proposal 2.
This comes following immense retail shareholder opposition, primarily focused on the substantial dilution coming with the reverse split. A Reverse Stock Split reduces the number of a company's outstanding shares while increasing the share price proportionately.
In Nikola’s case, the Reverse Split ratio will be in the range of 1-10 to 1-30, which is up to the Board of Directors discretion when they choose to effectuate it. It is also the Board of Directors discretion of whether to effectuate it in the first place, although it is expected that they will.
Contemporaneously with this, Nikola would be reducing their authorized share count from 1.6B to 1B, even though they aren’t required to by Deleware law, where Nikola is incorporated. The Authorized share count is how many shares a company can fully dilute. As a result, the amount of issuable shares will substantially increase since the outstanding share count will be between 10% to ~3.33% of what it was before the split, but the authorized share count will only be about 63% of what it was before the reverse split, leaving a substantial gap in between for the zero emission truck maker to issue significantly more shares.
Nikola plans to use the proceeds from selling these shares to fund their ongoing business operations. Nikola reiterated in their Q1 earnings in May that they plan to sell 300-350 Fuel Cell Electric Trucks (FCEVs) this year, with the majority of those being in the 2nd half of the year.
Nikola’s stock (NKLA) closed down 4.71% in after hours trading following this news.