by Andrew Hore
Merger activity is increasing among AIM cleantech companies, mainly at the larger firms in the sector. Low valuations and cash requirements seem to be behind a number of the bids and many are not welcomed by existing management, which is not necessarily surprising since not all the bids are particularly generous.
Some investors are sparking bids by selling their shares to potential bidders: this helps take their stakes above 30%, which triggers a mandatory bid. This sequence of events occurred at wind power generator Novera Energy, when Infinis offered 62.5p a share after its stake reached more than 30%.
Infinis has subsequently increased its bid for Novera to 75p per share following a share purchase at that price which took its stake to 46.7%. The increased offer price indicates that Infinis is keen to take control: however, Novera’s board is still rejecting the bid as too low. Infinis, already one of the largest renewable energy generators in the UK, would benefit from economies of scale in buying Novera.
The current bid is below Hanson Westhouse’s valuation of 86p a share and KBC Peel Hunt’s fair value price of 98p a share, which includes 14p per share for synergy gains. KBC Peel Hunt recognises the strong position of Infinis, but still believes that a bid of 80p-85p a share would be fair.
Clean Energy Brazil (CEB) is another company where a bidder wants to gain control at a knock-down price. Global Investors Acquisition LLC (GIA) launched a mandatory bid for CEB following an acquisition of shares that took its stake, and those of related parties, to 50%. GIA says that it wants to change the company’s strategy and drop its AIM quotation.
CEB’s board members do not believe that the bid is offering full value, but they fall short of recommending its rejection. Instead, they acknowledge the potential risks and tell shareholders to consider their individual circumstances.
CEB has a minority investment in a sugar mill in Brazil and some land acquired to produce sugar. GIA points out that administration expenses were $6.3 million in the year to April 2009. The company had $24 million in the bank in October and disposal proceeds of $2.9 million are due in March 2010. The 12.68p per share bid values CEB at £18.7 million, which is not much more than the cash pile. GIA has already declared the bid wholly unconditional, having taken its stake to 56.3%.
The biggest potential merger, however, does not involve any cash. Carbon trading business, Trading Emissions, would reverse into clean energy investment company, Leaf Clean Energy (LCE), via an all share offer. There is already strong backing from shareholders for this deal, but no firm offer has yet been agreed. The enlarged company should be worth around £400 million and plans to move to the London Stock Exchange’s main market.
Both companies have strong balance sheets with cash in the bank. LCE had $168 million in cash at the end of June 2009, although it has committed a further $65.6 million of capital for further investment. Trading Emissions had just over £125 million in cash at the same point in time.
The two companies believe that the merger would create a balanced portfolio of renewable energy and carbon-focused assets. More importantly, it will provide the cash-hungry Trading Emissions with further capital to invest.
What does seem to link all these bids is a desire to cut costs and save money, in addition to the acquisition of cash for further investment. Even though the cleantech sector on AIM has performed strongly this year it is still difficult to raise additional cash. Buying a company that already has cash on its balance sheet is easier, so other cash-rich companies may find themselves attracting suitors.
In contrast to these larger deals, shell companies which have sold or closed their original cleantech operations have found it difficult to acquire new businesses. One thing such shell companies, such as Voller Energy and ReEnergy, do not have is a significant cash pile. Voller already intends to wind itself up, and others may follow suit.
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