Shareholders approved Friday EV startup Lucid Motors’ merger with special purpose acquisition company Churchill Capital IV, after the companies extended the deadline by one day because not enough retail investors showed up to cast their vote.
The issue is unusual but could become more common as more companies eschew the traditional IPO path to public markets and instead merge with SPACs.
The hiccup occurred on Thursday, when shareholders voted to approve all but one of the proposals as part of the merger — proposal two, which would revise the company’s charter so that Lucid could receive key financing. That proposal requires a higher number of votes than the others — and it must be approved for the merger to take place — so a lack of votes ended up halting the entire process.
The lack of shareholders was blamed on retail investors' unfamiliarity with the SPAC process and, unbelievably, spam filters gone awry.
Churchill chairman Michael Klein raised the possibility that some of the emails sent to shareholders were accidentally sent to voters’ spam folders. While it may seem incredible that something as low-tech as a Gmail spam filter might interrupt a multibillion dollar business merger, it seems that may have occurred in this case.
“We simply need more votes,” Klein said on an investor call Thursday. Lucid Motors CEO Peter Rawlinson was also direct: “I need you to vote for proposal two.”
“We recognize that for many of you, this voting process may be new or not standard,” Klein continued. He later thanked the many individual shareholders but urged those “participating from the new platforms, the new apps,” to vote. “They may not necessarily be directing you clearly to the voting service.”
The number of amateur or so-called “retail traders” has exploded since the start of the pandemic, largely thanks to apps like Robinhood, which leverages gamification strategies to encourage users to buy and sell stocks from anywhere. The pinnacle of this phenomenon will likely be remembered by history in the explosive rise in prices of stocks for failing companies like GameStop and AMC entertainment, engineered by an army of retail traders on the subreddit r/wallstreetbets. Retail investors account for around 10% of the U.S. equity trading volume, according to a report from Morgan Stanley, down from a high of 15% last September.
But if the rise in the price of meme stocks shows us anything, it’s that retail traders are a powerful force. The Morgan Stanley report notes that “retail investors tend to prefer companies in sectors they are likely to be familiar with as consumers, such as Consumer Discretionary, Communication Services, and Technology.” This could be why the Churchill SPAC was high on many retail investors’ radars.
In a highly awarded post on the subreddit r/SPACs, a Reddit user urges new retail shareholders to participate in voting: “This is not normal. SPACs have never had to beg shareholders to act in their own best interest before.
You MUST vote. A non-vote does NOT count as a YES. A non-vote is just a non-vote.”
While Lucid’s merger hold-up is a very different scenario than that of meme stock trading, it’s yet another reminder that retail investors are continuing to shape markets.