Board Soft on Bid for Energy Factors

Energy Factors’ board of directors has declared itself “unable” to recommend that owners of 45% of the company’s publicly held stock accept a $6.50 per share tender offer by Sithe Energies.

However, the board unanimously agreed that Sithe’s $6.50 offer is “inadequate as a measure of the intrinsic value of the company,” according to Energy Factors Chairman Robert E. Morris.

Five board members who represent Sithe, the New York-based company that owns 55% of Energy Factors’ shares, abstained from voting, Morris said.

The three board members who were not nominated by Sithe were unable to reach agreement on whether shareholders, many of whom acquired Energy Factors stock for as much as $11, should accept the $6.50.

Morris, Energy Factors President Ralph J. Grutsch and board member Raymond E. Peet were unable to recommend that shareholders accept the offer.

‘Couldn’t Dictate’

“Ralph and I didn’t believe that we could dictate to stockholders, all of whom have a different point of view,” Morris said.

Peet recommended that shareholders not tender their shares. Grutsch and Morris acknowledged that they plan to accept Sithe’s $6.50 tender offer.

This offer is the latest in a complicated series of proposed deals involving Sithe and Energy Factors.

In May, Sithe offered $17.25 per share, or $80 million, for Energy Factors, which builds and operates energy projects. Sithe, an operator of hydroelectric plants, backed away from that plan June 3 after reconsidering the cost.

It subsequently offered to buy 70% of Energy Factors’ stock in a deal valued at $100 million. As part of that deal, Sithe acquired 4.7 million shares of newly issued Energy Factors common stock for $10 a share, and agreed to eventually buy an additional 5.2 million shares of to-be-issued stock for $52.5 million.

But Sithe backed away from that deal in the wake of the Oct. 19 market crash. Energy Factors’ stock, which had been trading at more than $8, fell to about $6 after the crash. It closed down $.125 at $5.625 Monday. Energy Factors had a book value of about $9 per share at the end of 1987, Morris said.

Stock’s Trading Climbed

Energy Factors’ stock trading volume increased dramatically in the months after Sithe’s first offer. During recent months, nearly 2 million shares have changed hands, Morris said.

Morris speculated that many of those trades have involved arbitrage firms that have been buying and selling the company’s stock.

In December, a disgruntled shareholder initiated a class-action suit that described Sithe’s $6.50 per share tender offer as inadequate. The suit alleges that Sithe’s offer violated its fiduciary responsibility to Energy Factors’ minority shareholders.