SPAC, ESG, Stock Pick —Overview and analysis on Alussa Energy Acquisition and FREYR deal

Choosing the right stock: Cherry-picks at its finest?

The trend is your friend! That’s what they say. So, what is the hottest thing on the financial markets these days? Well, you guessed it: SPACs and ESG (next to cryptos). And what is better than combining them into one unit, i.e. Alussa Energy Acquisition. So let’s look at this stock, what it means, what the news currently are and what it can offer the critical investor.

First lets look at some basics:

1. SPAC: Standing for Special Purpose Acquisition Company, is an easier way to get currently a not yet listed, existing operating company via raising capital through an initial public offering (IPO). How does the process work: I refer to this post of PwC who provide overview of the whole process. Normally the price to buy into such aSPAC starts from 10$ and increases if an interesting target is found. If no target is found within a period of generally 2 years, the money is refunded to the investors. So you cannot loose anything? Well you do in two way: The first obvious way is that if you buy at a to high price (e.g. if no target is found or the current negotiations fail) you loose the premium you paid. Second, often not considered but in my opinion equally bad, the opportunity costs. So the first things to do — buy at a price close to 10$, only invest into SPACs with renown individuals backing them and look out for industries with a possible future.
2. ESG: Acronym for environmental, social, and governance — ESG are defined as criteria used by socially conscious investors to screen investments. In the aftermath of the Paris Climate agreement, investments will largely be redistributed (i.e. also from the government side) to companies who correspond to these criteria. The following paper provides a good overview of the possible impact on the energy transition (Covington, 2016). With the planned volumes into these companies (e.g. the Green New Deal, European Green Deal), the possible impact on the corresponding stock prices seems reasonable.

Now let us look at Alussa Energy Acquisition and why this stock might be still a cherry-pick or in plain english an interesting stock to buy.

Some infos on Alussa: Alussa is run by renown and well educated individuals within the energy sector (e.g. James Musselman, Daniel Barcelo). As such the target they pick must be in a sector with a promising future and a solid business model. And guess what, they found such a target — that is FREYR, a Developer of Clean, Next-Generation Battery Cells. So lets look at FREYR a bit closer:

1. Product:

On their webpage you’ll find the following “FREYR’s goal is to decarbonize transportation and energy systems by delivering sustainable and cost-effective batteries […] FREYR plan to produce clean, cost competitive lithium-ion batteries to accelerate decarbonization of global energy and transportation systems.” — All in all the vision sounds interesting and definitely on the line with our though of looking at the ESG trend. How does the reality look? If you dive into the Norwegian financial news, you’ll find promising statements regarding the effective implementation. Recently a norwegian regional newspaper (Ranablad) posted the following (translated):

Now it is definitely appropriate to be a conditional optimist, because the adventure is about to become a reality. A giant establishment and a giant investment is no longer utopia. With 1,500 jobs and investments of 20 billion in sight, the plans Torstein Dale Sjøtveit and Freyr presented in the autumn of 2018 are becoming a reality, writes editor-in-chief Marit Ulriksen.

2. Management:

Let’s look at the CEO, Torstein Dale Sjøtveit. Looking at the different positions he held and the experience he has in the energy sector, he’s a perfect leader for a company to grow. On Syncron you will find the following information which talks for the person himself: “His last position was as Group CEO of Sarawak Energy Berhad a fully integrated utility company in Malaysia, under Torstein’s 7 years leadership of the Group the company experienced a tremendous growth in performance leading to a three fold growth in the company’s turnover and profits from 2009 to 2016. Torstein is now focusing on professional board membership and advisory work.” So imagine that for FREYR and the future with the money they received through the SPAC deal.

3. Partners and agreements: Many big fishes are involved, so let’s drop some names:

Glencore: Glencore (leading commodity company) strengthens cobalt partnership with FREYR and “also purchased an equity stake in FREYR through its business combination with Alussa Energy Acquisition Corp, a special purpose acquisition company listed on the New York Stock Exchange (NYSE)”

Koch Strategic Platforms: A subsidiary of Koch Industries has been next to Glencore also a strategic investor into the SPAC. Koch Industries is an American multinational corporation with revenues of US$115 billion in 2019.

Fidelity Management & Research Company LLC: One of the largest asset managers (combined total customer asset value number of $8.3 trillio) and also a strategic investor. I note here that according to some sources, they cashed in the the most on the “GameStop” case.

Franklin Templeton: Another big fish among the asset managers with AUM (asset under management) of US$1.4 trillion.

Van Eck Associates Corporation: Another investment management firm with the majority of VanEck’s assets in gold investments according to wikipedia.

Furthermore they recently (17–02–2021) received further government support (NOK 39 million in development support) from Innovation Norway, the Norwegian Governments key instrument for supporting innovation and development of Norwegian enterprises and industry has granted FREYR NOK 39 million in development support.

4. Some financial information: According to bloomberg the following information is given:

“The business combination values the combined company at an implied $1.4 billion pro forma equity value. The transaction implies an equity value of FREYR of approximately $410 million. Current FREYR shareholders (fully diluted) are expected to own approximately 30% of the combined company after transaction close, representing an exchange ratio of approximately 0.179031 of shares of the combined company for each share of FREYR based on the currently available information and assuming a $600 million PIPE.”

5. Some basic sentiment analysis:

Using the tool social searcher one can find some basic information about the sentiment of the company. Looking at the stats for FREYR the following information (at time of writing this) is provided:

Even though still scarce, among the major social media platforms the sentiment is positive, also speaking for being a rather secret but still attractive investment possibility.

Summed up: This investment looks pretty promising, however what I want to note is also a possible critical point: We know that FREYR produces “designs and manufactures high-density and cost competitive lithium-ion batteries”. lithium-ion batteries might be still the state-of-the-art type of battery. However critics among the resource and the efficiency of these batteries exist. Thus, the question: Is lithium-ion batteries still the way to go? Or are zinc-ion batteries, sodium-sulphur or other, newer technologies the future?

So, what is your take on SPACs, Alussa and FREYR? Looking forward to your comments!