SmartKem Stock Plummets 31% on Jericho Energy Merger Plan
Investors react negatively to an all-stock deal that would heavily dilute current shareholders and pivot the semiconductor firm into AI infrastructure.
Shares of SmartKem (NASDAQ: SMTK) collapsed by more than 31% in heavy trading after the semiconductor technology firm announced a potential merger with Canadian energy investment company Jericho Energy Ventures. The sharp sell-off reflects significant investor concern over the terms of the proposed all-stock deal, which would see SmartKem shareholders heavily diluted and the company's strategic focus radically altered.
The two companies have for a business combination aimed at creating a U.S.-owned artificial intelligence (AI) infrastructure company. The negative market reaction was immediate, with trading volume surging to 2.1 times its daily average as investors digested the news. The decline wiped out nearly a third of the company's market value in a single session.
Under the proposed terms, Jericho's stockholders would own 65% of the combined entity, while existing SmartKem stockholders would be left with just 35%. The new company would be led by Jericho's current CEO, Brian Williamson, and its board would be reconstituted with a majority of members designated by Jericho. The plan is to leverage SmartKem's semiconductor technology with Jericho's energy assets to build solutions for energy-efficient AI data centers.
Investors appear to be balking at both the strategic pivot and the financial implications. SmartKem, a UK-based firm, specializes in advanced organic semiconductors for displays and AI chip packaging. The merger would combine it with a company whose primary assets include traditional oil and gas operations in Oklahoma, which it intends to use for powering AI data centers. Furthermore, the announcement noted that to complete the transaction, signaling the potential for further dilution for current shareholders.
The transaction remains subject to numerous conditions, including the negotiation of a definitive agreement, completion of due diligence, and regulatory and stockholder approvals. The companies have entered a 60-day exclusivity period to finalize the terms, leaving the future of SmartKem's technology platform and its current investors in a state of uncertainty.