What happened
The Securities and Exchange Commission is following through on its pledge to get tough on special purpose acquisition companies (SPACs), charging Stable Road Acquisition (SRAC) and its merger partner Momentus with misleading investors about their planned deal. Stable Road shares traded down as much as 10% today as a result.
So what
The road to a deal completion has been anything but stable for these two merger partners. Last October, space-tug company Momentus announced plans to combine with Stable Road, but that deal has been bogged down by regulatory concerns related to Momentus' Russian founder Mikhail Kokorich.
Image source: Getty Images.
The scrutiny has also stalled Momentus' business, leading the company to announce that its customer SpaceX suspended work with it, pending U.S. government approval. That means Momentus is unlikely to fly any missions this year.
The SEC -- in charges filed against the two companies, Stable Road sponsor SRI-NI, Stable Road CEO Brian Kabot, and Kokorich -- claim the companies misrepresented the extent to which national security concerns could limit Momentus' ability to secure required government licenses.
The government also says Momentus repeatedly told investors it had successfully tested its propulsion tech in space when, in truth, the company's only in-space test had failed to achieve its primary mission objective or show it is commercially viable.
The companies have paid $8 million to settle the charges without admitting or denying the allegations.
Now what
The two companies remain committed to getting the deal done, reworking the merger agreement last month to slice Momentus' valuation in half. Kokorich has pledged to fully divest his ownership by March 2024, and Stable Road hopes Momentus will generate about $1.3 billion in EBITDA in 2027.
But given the SEC's claims, it is hard for an investor to have any real clarity on the outlook for Momentus' business even assuming the regulatory issues are worked out and the deal is allowed to close.
Shares of Stable Road are down 39% year to date and off nearly 60% from their February highs. At best, this appears to be a high-risk investment that could go to the moon, but could also never get off the ground. Investors who are still excited about the opportunity would be wise to limit their ownership to a small part of a well-diversified portfolio.
