Just a few weeks ago, hedge fund activist-cum-social do-gooder Jeff Ubben was looking like a genius.
On June 23, Ubben told the Financial Times that he was leaving the activist hedge fund he founded, ValueAct Capital, to start a new ESG fund.
And on August 5, it became clear in a securities filing that he was taking one of ValueAct’s best-performing investments — fuel cell and battery-powered truck maker Nikola—with him.
Nikola, which went public on June 4 following a merger with a special-purpose acquisition company called VectoIQ, has been one of the year’s hottest SPACs — soaring as high as $93 per share on June 9. At least that was the case until last week, when Nate Anderson’s Hindenburg Research accused Nikola of being “an intricate fraud built on dozens of lies over the course of its Founder and Executive Chairman Trevor Milton’s career” and said it was short the stock
Since then, Nikola shares have fallen about 30 percent from the $50.05 they traded at two days before the report came out on Thursday.
But thanks to the perks that SPACs offer early investors and insiders, Ubben, who joined Nikola’s board of directors, is still sitting pretty.
Ubben’s new fund — Inclusive Capital Partners — is now Nikola’s second-biggest investor. It had a stake worth about $729 million as of Monday’s close of $35.79, according to an August 5 13D filing with the Securities and Exchange Commission.
The fund owned 20,362,024 shares, or 5.6 percent of Nikola, acquired at an average price of $7.54 per share — well below the $10.00 IPO price of the SPAC on May 16, 2018.
ValueAct had bought 5 million of those shares at $10, as part of a public investment in private equity (PIPE) deal the SPAC orchestrated to raise more money to close the deal with Nikola. The lower cost of the rest was part of the agreement made as part of the merger, when Ubben became a board member.
All told, Ubben paid about $154 million for his Nikola shares.
The shares now held by Inclusive Capital Partners appear to have been transferred from ValueAct, which reported on August 4 that it has sold out of its position, which was the exact same size.
On August 11, Ubben trimmed the position slightly, selling 1.4 million shares at around $42.69 each, according to filings.
But even though Ubben still has a huge gain, as a director of the company he is now immersed in a battle with two short sellers, Hindenburg and Andrew Left’s Citron Research, which joined the short attack the day after Hindenburg’s scathing report was released. (Several years ago, Left also went after another of Ubben’s favorite stocks, pharma rollup Valeant.)
Among Hindenburg’s most outlandish findings was a video that had created the impression that a Nikola truck was driving on its own “at a high rate of speed,” the report claims. Instead, it said “Nikola had the truck towed to the top of a hill on a remote stretch of road and simply filmed it rolling down the hill.”
That was in January of 2018. In the fall of 2017 Ubben and his team had heard about Nikola’s new technology and had contacted the company, according to a CNBC report.
“They remained in contact with the company until the hydrogen truck was built and then flew to Phoenix to be the first to see the truck and drive it with Trevor Milton, the founder of Nikola,” Ken Squire, the president of 13D Monitor, wrote on CNBC’s website June 27.
Ubben told Institutional Investor in an email that he drove in the truck in April of 2019.
In a press release Monday, Nikola said that the “allegations by the short seller are false and misleading, and designed to manipulate the market to profit from a manufactured decline in Nikola’s stock price.”
In taking on Hindenburg’s allegation that “2016 Nikola One was not a real truck and was, in fact, a pusher,” it responded: “The Nikola One is a real truck that sits in Nikola’s showroom. A pusher means a vehicle that was not designed to be moved by its own propulsion system. The Nikola One was, in fact, designed to be powered and driven by its own propulsion.”
But it didn’t deny the video was a fake. “As Nikola pivoted to the next generation of trucks, it ultimately decided not to invest additional resources into completing the process to make the Nikola One drive on its own propulsion. After pivoting, Nikola produced prototypes for the Nikola Two, which are self-propelled and have been frequently demonstrated, beginning with demonstration runs at Nikola World in April 2019.”
The stock jumped more than 10 percent on the release Monday.
But after the market closed Monday, Bloomberg reported that the SEC is looking into Hindenburg’s claims, citing people familiar with the matter. The stock had fallen another 6 percent by midday Tuesday.
Hindenburg says Nikola has two prototypes that it has been driving around parking lots, though it is unclear whether the truck runs on hydrogen or fuel cells.
In his email to II, Ubben noted that a Nikola truck made a delivery to Anheuser-Busch, which could be found online. A press release of Nov 22, 2019 confirmed that “this morning, a Nikola hydrogen-electric truck picked up the load of beer, including flagship beer brand Bud Light, and delivered it to Anheuser-Busch local wholesaler partner, Lohr Distributors — marking the first commercial delivery onboard a Nikola hydrogen-electric vehicle.”
Just days before Hindenburg released its report, Nikola had announced a partnership with GM that will give the auto giant a $2 billion stake in Nikola in exchange for in-kind contributions from GM.
Stephen Girsky, the VectoIQ SPAC’s CEO, was on General Motors’ board of directors following its emergence from bankruptcy in June 2009 until June 2016. He previously held senior positions at Centerbridge Partners and Morgan Stanley.
VectoIQ looked to be running out of time to find a merger partner before it would have to return investors’ capital when it announced the intent to merge with Nikola on March 3, a little more than two months shy of its two-year deadline of May 18, 2020. SPACs must give investors their money back if they don’t find a partner within 24 months.
Meanwhile, other Nikola partners have also been selling their shares. Worthington Industries and Bosch have sold shares, according to the Hindenburg report. “We think they know exactly what type of company Nikola is, and we expect that as Nikola’s GM ‘partnership’ boosts the stock price, key holders will continue to exit,” it said.
That may be happening already. Trading in Nikola shares since the report surfaced has been “overwhelmingly due to long sided activity – _existing longs selling to lock in whatever is left of their mark-to-market profits,” according to a new report from S3 Partners, which tracks short selling.
So far, selling Nikola shares short is not as treacherous as shorting electric carmaker Tesla has been, but both stocks are among the top shorts in the auto industry. Since the Hindenburg report, shares shorted of Nikola have increased by 1.34 million shares, worth $43 million, according to data analytics firm S3 Partners. Some 7.5 percent of its float is short, compared with only 7.08 percent of Tesla’s float.
