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Is Naked’s Cenntro Acquisition A Mismatch?

Naked announced that investors were overwhelmingly in favor of its Cenntro acquisition and a reverse stock split has also been approved.

This isn’t your usual acquisition. In fact, it’s more reminiscent of a SPAC merger considering Naked (NASDAQ: NAKD) and Cenntro show little to no similarities in their business models, yet the two are intertwining as one. Naked’s reverse stock split has also received shareholder approval. 

What is a reverse stock split?

Known as share consolidation, consolidation of shares, or a reverse stock split; it is when a publicly-traded company reduces the number of shares issued proportionately. A reverse stock split does not impact a company’s value or the value of your current holdings, it merely increases the per share price in-line with the agreed split ratio. For example in a 1:20 reverse stock split, you would receive one share for every 20 shares owned.

More often than not, companies engage in share consolidation to improve a company’s perceived image among investors. For example, if a company’s shares are trading below a dollar, it may seek approval from investors for a reverse stock split in order to maintain a stronger company image and not to be lumped together with penny stocks. 

Why is Naked doing a reverse stock split?

The company has come under fire as its shares are trading below $1. The NASDAQ previously threatened to remove the company from the index and in November issued a 180-day extension for the company to raise shares to a price between $1 – $10, or it would be delisted. Its 1-for-15 split means shareholders will receive one share for every fifteen held, so it shouldn’t be confused with a meteoric rise in the value of the company. 

What does Naked do?

Naked — not to be confused with the popular juice and smoothie brand owned by Pepsi — is an online lingerie and swimwear apparel company. In January 2021, the Naked brand split off from its original holding company, Bendon Group, in an effort to focus on e-commerce. 

Naked’s acquisition of Cenntro

Cenntro is an EV manufacturer in the commercial vehicle sector that has just been acquired by Naked. Naked is using $30 million of its $282 million cash pile to inject into the EV company’s production and growth opportunities. Considering the two companies operate in extremely different markets, the investment looks more similar to how special purpose acquisition companies (SPACs) operate in the form of a capital raise. 

Is Naked a good investment?

The company itself is a micro-cap with an unproven track record, marching into unchartered territories, and clearly lacks an overall vision for where the company is going. The latest deal might attract speculators to this company rather than investors but until real opportunities present themselves. It’s probably one investors should steer clear of.

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