United Technologies to Buy Stake in Capstone

Capstone Turbine Corp. said Monday that industrial giant United Technologies Corp. has agreed to purchase nearly 5% of the once-highflying maker of power generators, which has been short-circuited by a blackout of investor interest.

Chatsworth-based Capstone also said its chairman and chief executive, Ake Almgren, would retire and that it expects to post another in a long string of losses when it releases its third-quarter earnings Thursday.

Capstone shares shot up 36 cents, or 48%, to close at $1.11 on Nasdaq. Capstone said it plans to repurchase up to $10 million of its common stock, which at Monday’s price represented nearly 12% of the company.

Almgren, 56, has guided the company since 1998 and oversaw its initial public offering in 2000. But the Swedish engineer faltered in transforming Capstone from a start-up business that developed fuel-efficient microturbines into one that could successfully market a commercial product, said Daniel Fidell, an analyst with A.G. Edwards & Sons.

Capstone officials would not comment further about Almgren’s announced retirement except to say that board member Eliot G. Protsch, president of Alliant Energy Corp.’s Interstate Power & Light Co., will become Capstone’s new chairman. The company also said it has begun the search for a new chief executive.

Soon after going public in June 2000 at $16 a share, Capstone stock traded close to $100 a share, riding investor hope that the escalating California energy crisis would stoke demand for its refrigerator-size generators, which run on natural gas and other fuels. Capstone’s smallest generator produces about 30 kilowatts, enough to power a small store or fast-food restaurant.

But Capstone did not effectively capitalize on its initial burst of publicity and has never turned a profit. The company sells about 500 generators annually, too few to break even.

The company’s rate of sales has steadily declined for several years. Capstone said Monday it expects to lose 14 cents to 16 cents a share in the third quarter on revenue of $3.9 million.

Although Capstone expects to lose less money than Wall Street anticipates in the third quarter, Fidell noted that its sales were projected to be far below the $6 million to $7 million expected by the investment community.

Fidell, who has issued a sell recommendation to Capstone shareholders, said the company has been hurt by the falloff in business spending and capital investment.

“Companies are just not going to spend major dollars for a new alternative power product in this type of economic environment,” Fidell said.

Capstone is in an unusual situation in which its cash reserves are substantially higher than its $86-million stock market value. The company has about $144 million in cash, enough to last for several years at its current spending rate.

Its deal with Hartford, Conn.-based United Technologies, however, could provide Capstone with an entree into new markets, helping to boost production of its generators.

Jan van Dokkum, president of United Technologies’ UTC Power, said Capstone’s microturbines will fit into the company’s strategy to sell energy- efficiency products to the operators of commercial buildings.

Neither company disclosed how much United Technologies will pay for its 4.9% stake in Capstone.

Karen Clark, Capstone’s chief financial officer, said more information about the transaction will become available after Capstone reports its earnings Thursday.

The investment also should help Capstone compete against two large industrial companies interested in similar technology. Ingersoll-Rand Co. has its own line of generators, and General Electric Co. purchased microturbine patents and equipment from Honeywell International Inc. in December.

“While the United Technologies alliance does not change the fact that there is no immediate catalyst to boost shipments of Capstone’s products, it does add some credibility when an alternative power company aligns itself with a major power equipment company,” Fidell said.