Navigating the Risks and Rewards of Workhorse Group's Merger with Motiv Power: A Shareholder's Perspective

The proposed merger between Workhorse Group Inc. (Nasdaq: WKHS) and Motiv Power Systems, Inc. has ignited a firestorm of debate among investors, legal experts, and industry analysts. At its core, the transaction aims to create a dominant North American medium-duty electric truck OEM by combining Workhorse's manufacturing infrastructure with Motiv's fleet relationships and product portfolio. However, the fairness of the deal—particularly the 26.5% equity stake allocated to Workhorse shareholders—remains a contentious issue. This article dissects the legal and financial risks embedded in the merger structure, evaluates whether the equity allocation reflects true value, and assesses the implications of ongoing class-action investigations on investor confidence.

The Merger Structure: A High-Stakes All-Stock Deal

The merger is structured as an all-stock transaction, with Motiv's controlling investor securing a 62.5% stake in the combined entity. Workhorse shareholders retain 26.5%, while the company's existing senior secured lender holds 11% of the equity. This allocation is predicated on a $105 million enterprise valuation, derived from a $20 million sale-leaseback of Workhorse's Union City, Indiana plant and a $5 million convertible note. Post-merger, Motiv's investor will provide $20 million in debt financing—$10 million via a revolving credit facility and $10 million through an asset-based lending (ABL) facility—to fund manufacturing costs tied to confirmed orders.

Critics argue that the 26.5% stake for Workhorse shareholders may undervalue their pre-merger equity. As of June 30, 2025, Workhorse reported $22.35 million in stockholders' equity, with $39.52 million in convertible notes and $3.15 million in warrant liabilities. The $105 million valuation assumes significant cost synergies—$20 million by 2026—through R&D, G&A, and facility rationalization. However, achieving these savings hinges on seamless integration, a process fraught with operational and cultural challenges.

Legal Risks: Class-Action Scrutiny and Shareholder Distrust

The merger's fairness is further clouded by ongoing legal inquiries. Monteverde & Associates PC, a top-tier securities class-action firm, is investigating whether the deal adequately protects Workhorse shareholders. This follows a $35 million settlement in the 2023 Farrar v. Workhorse case, which stemmed from alleged misrepresentations about the company's financial health. While the 2025 merger includes a shareholder letter outlining strategic benefits, the absence of a clear independent fairness opinion from financial advisors raises red flags.

The legal uncertainty could delay shareholder approval, a critical condition for the merger. If the deal falters, Workhorse's stock may face downward pressure, exacerbating losses for existing shareholders. Moreover, the class-action investigation could trigger regulatory scrutiny, potentially deterring future investors.

Equity Allocation: Does 26.5% Reflect True Value?

To assess the fairness of the 26.5% stake, we must compare pre-merger valuations. Workhorse's standalone equity value of $22.35 million contrasts sharply with the $105 million combined valuation, implying a 3.2x premium. However, this premium assumes Motiv's controlling investor is paying a fair price for synergies. If Motiv's standalone value is negligible—a plausible scenario given its reliance on Workhorse's manufacturing—then the 26.5% stake may be disproportionately low.

Financial advisors Stifel/Miller Buckfire and TD Cowen have provided fairness opinions, but their analyses are not publicly disclosed. Without transparency into their valuation models, it's difficult to verify whether the 26.5% allocation accounts for Workhorse's historical performance, debt restructuring, and future growth potential.

Investor Confidence and Market Implications

The merger's success hinges on investor confidence in the combined entity's ability to execute its strategic vision. Workhorse's recent stock price volatility—driven by its precarious financial position—suggests skepticism. A $105 million valuation is modest for a company targeting the $23 billion medium-duty truck market, raising questions about whether the deal creates sufficient upside for shareholders.

The ongoing class-action investigation further erodes confidence. Shareholders may perceive the 26.5% stake as a concession to Motiv's investor, particularly given the latter's control over post-merger financing. If the merger closes, the convertible note held by Motiv's investor could dilute Workhorse's stake further, compounding concerns about value erosion.

Conclusion: A High-Risk, High-Reward Proposition

The Workhorse-Motiv merger presents a compelling narrative for the electric vehicle sector but is riddled with legal and financial uncertainties. While the 26.5% equity stake for Workhorse shareholders appears modest, its fairness depends on the realization of synergies and the resolution of legal challenges. Investors should monitor the class-action investigation and the merger's execution closely. For those with a high-risk tolerance, the deal could unlock long-term value if the combined entity gains traction in the medium-duty EV market. However, the risks of dilution, regulatory hurdles, and operational missteps warrant caution.

In the end, the merger's legacy will be defined not by the ink on the agreement but by its ability to deliver on its promises in a rapidly evolving industry.