Merger Offer for S.D. Firm Drops Sharply
New York-based Sithe Energies Group surprised Energy Factors shareholders on Friday with a $6.50-per-share merger offer that, if accepted, would fall far below a $17.25-per-share tender offer that Sithe failed to complete earlier this year.
Sithe, which owns 55% of Energy Factors’ shares and controls its board of directors, said late Friday it would pay $27 million for Energy Factors’ remaining 4.2 million publicly held shares.
According to analysts, many Energy Factors shareholders are likely to be unhappy about the offer because many bought the company’s stock at prices well above $6.50. Battered in the recent stock market crash, Energy Factors stock closed down $.125 at $5.375 on Friday. The stock hit a high of $22.50 during 1986 and had a book value of $9 at the end of 1986.
“I think there’s going to be a lot of livid shareholders out there because of this proposal,” suggested Larry Selwitz, a Los Angeles-based securities analyst with Bateman Eichler, Hill Richards.
The merger offer represented Sithe’s third attempt to take over or control San Diego-based Energy Factors. In April, the New York-based operator of hydroelectric plants failed to complete a letter of agreement to acquire Energy Factors for $80 million, or $17.25 per share.
After that deal fell through, Sithe paid $47 million, or $10 per share, for 4.7 million newly issued Energy Factors shares. It also agreed to pay an additional $52.5 million for 5.2 million new shares to be issued during 1988, also at $10 per share. Upon completion of the second installment, Sithe would then own 70% of Energy Factors’ outstanding stock.
Analysts speculated that Sithe is attracted to the possibility of acquiring all of EFI’s remaining outstanding shares for $27 million instead of spending the additional $52.5 million and ending up with just 70% of the company.
Energy Factors Chairman Robert Morris on Friday suggested that the dramatic difference between the $17.25 offer and Friday’s $6.50 bid may be explained by “market conditions that have changed dramatically” since Oct. 19.
Energy Factors’ eight board members, including five Sithe appointees, Wednesday will appoint an independent board committee to “establish a fair market value that will be submitted to the board,” Morris said. “Sithe must then decide whether or not to meet that price, if it is higher, or withdraw its ($6.50-per-share) offer.”
Sithe needs a simple majority vote to carry the merger proposal during an as-yet-unscheduled shareholders meeting.
Morris, however, predicted that Sithe’s board of directors would give substantial consideration to the independent committee’s suggested price because “the courts have, in the past, accepted those (committee) recommendations as establishing fair market values.”
Sithe is the U.S. subsidiary of Compagnie Generale des Eaux,a large, privately held French public service company.
