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Blank-check company mergers are a popular way to take a company public these days. With the highly anticipated merger between Fisker and Spartan Energy (NYSE:SPAQ) just around the corner, SPAQ stock is a hot name right now.
But will that enthusiasm continue? Recently, the chairman of the Securities and Exchange Commission (SEC) went on record throwing a wet blanket over special purpose acquisition company (SPAC) mergers.
Chairman Jay Clayton told CNBC that he is “particularly focused” on SPAC mergers over concerns that investors aren’t seeing all the disclosures they need before choosing to toss in their money.
“Competition to the IPO process is probably a good thing. But for good competition and good decision making you need good information. And one of the areas in the SPAC space that I’m particularly focused on is the incentives and compensations to SPAC sponsors, how much of the equity do they have now, how much of the equity they have at the time of the transaction. We want to make sure investors understand those things and at the time of transaction when they vote, that they are getting the same rigorous disclosure that you get when you bring an IPO to market.”
SPAQ stock fell nearly 7% after Clayton’s statement. So, is a pre-merger investment worth it?
SPAQ Stock and Fisker
When it comes to Spartan Energy, I’m not bothered by Clayton’s comments. A little more oversight of blank-check deals isn’t a bad thing. I’m all for investors getting information before they make a smart decision.
But dropping money into a SPAC itself, before a merger is announced, is more like gambling than investing. A blank-check company is only as valuable as the product that its management team chooses to associate with.
That’s one reason why — as I wrote last month — the SPAQ-Fisker deal stands out head-and-shoulders over other deals in the market right now. I have a lot of confidence that this merger is a solid buy.
Why Fisker Is a Winner
Electric vehicle (EV) stocks are popular plays right now, and Fisker looks like one of the better opportunities out there. Fisker says its upcoming vehicle, the Ocean, will be the “world’s most sustainable vehicle.” The car features fully electric power, a vegan interior, and it’s made with recycled materials. Production is set to start in the fourth quarter of 2022.
Now, I’m not predicting that Fisker will be the next big EV play. But the company is helmed by Henrik Fisker, who is renowned for his luxury automobile design. In fact, he was behind many vehicle designs that remain iconic today. That’s a promising name behind the company.
And not surprisingly, initial reviews of the Ocean concept are decidedly positive for its sleek, trendy design. It also compares well with competitors, offering 300 miles of driving range and a solar panel roof. This, all for less than $40,000.
The Ocean appears to be solid, and may give other EVs a run for their money. Additionally, the company’s sustainable vehicle marketing will even appeal to millennials and Generation Z.
Spartan Energy’s new merger is scheduled to be approved Oct. 28, after which the companies will have two years to close the deal.
The company is planning to have $2.8 billion in adjusted EBITDA by 2025, along with 225,000 units produced and $13.2 billion in revenue (Page 29).
Investors obviously won’t see profits from their positions until the company begins manufacturing and selling vehicles. But nevertheless, the exposure to Fisker, the growing interest in EV, and the appeal of a sustainable vehicle make SPAQ stock too tempting to pass up.
SPAQ stock has a “B” rating in my Portfolio Grader, where it carries a buy recommendation.