Lordstown Motors, the electric vehicle manufacturer based in Ohio, finds itself entangled in a contentious dispute with Foxconn after accidentally selling a majority of its shares to the Taiwanese electronics company at a significantly reduced price. This revelation comes on the heels of Lordstown’s recent decision to file for bankruptcy, further exacerbating its already tumultuous situation.
Initially, Lordstown sold a 10 percent stake in the company to Foxconn in 2021, hoping to bolster its position in the electric vehicle market. However, as a series of scandals unfolded, the once-promising deal soured. Reports indicate that the head of a Foxconn subsidiary even refused to meet Lordstown’s CEO during a visit to Taiwan, underscoring the growing tensions between the two companies, as reported by Bloomberg.
Lordstown’s plummeting stock value posed a threat of delisting on the Nasdaq stock exchange, jeopardizing its agreement with Foxconn. To maintain its listing, the American startup executed a reverse stock split, combining shares to inflate their value, thereby retaining its position on the Nasdaq exchange.
While this move safeguarded the $47.3 million payment that Foxconn had committed to paying for a 10 percent stake, it may now be regretting its involvement. Following a stock split, customary adjustments are made to preserve the essence of ongoing agreements. However, Foxconn contests that it is entitled to 62.7 percent of Lordstown, according to a lawsuit seen by The Financial Times.
Lordstown asserts that Foxconn should pay $26.40 per share, reflecting the original agreement multiplied by 15 (the reverse stock split ratio), for a total of 1.79 million shares. Foxconn, on the other hand, maintains that the terms of the agreement do not necessitate adjustment after a stock split, insisting on purchasing the initially agreed-upon 26.9 million shares at the original price of $1.76 per share. Effectively, this would grant Foxconn a two-thirds stake in the company for $47.3 million.
While Lordstown’s lawsuit does not cite a clause requiring adjustments following a stock split, it highlights that the initial agreement pertained to less than 20 percent of the company. Moreover, Lordstown contends that accepting Foxconn’s position would mean that the Taiwanese company could have split its own stock and coerced Lordstown into paying significantly more for a minuscule fraction of the company, labeling this interpretation “an absurd interpretation of the Investment Agreement.”
Lordstown goes further, accusing Foxconn of “sabotage.” The American company’s animosity towards its investor stems from delays in launching the all-electric Endurance pickup, plans to introduce competing electric vehicles in the American market, and alleged attempts to undermine Lordstown’s existence.
However, not everyone is convinced that Foxconn’s intentions were malicious. Sam Abuelsamid, an analyst at Guidehouse Insights, suggests that Lordstown should have been wary of entering into a partnership with Foxconn, given the latter’s history. Abuelsamid also speculates that Foxconn may have simply decided against investing further in Lordstown due to perceived futility in salvaging the struggling startup.
In light of Lordstown’s Chapter 11 bankruptcy filing, the company is now seeking to sell off its assets. As a potential buyer, Foxconn and the startup must negotiate a fair price, a task that may prove challenging given their contentious past.
Lordstown Motors’ recent bankruptcy filing coupled with the dispute over the sale of shares to Foxconn underscores the significant hurdles the company faces in its quest for survival and the uncertain future that lies ahead.
