Evergreen Solar Pursues Reverse Stock Split | Marlborough firm seeks shareholder approval of plan at July 27 meeting
Due to a languishing stock price that has been trading at less than $1 per share for more than a month, Marlborough-based Evergreen Solar is asking its shareholders to approve an unusual one-for-six reverse stock split at its annual shareholder meeting on July 27.
The reverse stock split would reduce the number of Evergreen shares from 450 million to 120 million and buoy the share price, . With the stock price so depressed, Evergreen runs the risk of being delisted from the Nasdaq, which requires a minimum share price and market capitalization of the companies traded on the exchange.
Risky Maneuver
In a U.S. Securities and Exchange Commission filing advancing the July meeting, Evergreen said fear of delisting and being relegated to the over-the-counter bulletin board is driving the one-for-six reverse split. However, the company also acknowledges that the move can be met with criticism.
“A reverse stock split is often viewed negatively by the market and, consequently, can lead to a decrease in our overall market capitalization,” the SEC filing states.
There is also no guarantee that the reverse split will result in a new stock price that is six times the current price, according to the SEC filing, and if the price does rise, there’s no way to assure “any permanent or sustained increase in the market price of our stock, which is dependent upon many factors, including our business and financial performance, general market conditions, and prospects for future success.”
Evergreen management, of course, has a vested interest in the stock price. The company’s CEO, Richard Feldt, received $344,000 in stock awards last fiscal year and a total pay package of $1,792,175. The second highest-paid executive at the company, CFO Michael El-Hillow, received nearly $162,000 in stock awards and $970,862 in total compensation.
Under Pressure
A reverse stock split is not a good sign for any company, according to analysts who follow Evergreen. While share price and earnings-per-share numbers may rise and delisting may be avoided, the company hasn’t really changed anything about the way it does business.
But Evergreen is trying to change how it does business — by lowering costs.
Evergreen, which has a massive manufacturing facility in Devens and another in Michigan, is what analysts call a “high-cost producer” of solar panels. It has a highly effective, efficient and technologically advanced way of producing panels using relatively little silicon. It’s just really expensive and there’s a lot of very good competition out there from companies like San Jose, Calif.-based Sun Power Corp., which trades at around $13.25 per share and industry powerhouse First Solar Inc. of Tempe, Ariz., which trades at more than $100 per share.
But silicon prices crashed last year and a slipping stock price puts Evergreen on a race against time to ramp up production from its manufacturing facility in Wuhan, China.
“Shifting their operations to China is pretty essential if they want to get their production costs down towards industry norms,” said Alex Morris, an energy researcher at Florida-based Raymond James & Associates.
In the first quarter, Evergreen’s production costs hovered around $2 per watt. The company hopes to get that down to $1 per watt by 2012. If they aren’t, “it’s hard for them to compete on cost in the current environment,” Morris said.
Independence Day
Pavel Molchanov, an analyst at Raymond James, said Evergreen “is a company in a tough position. They’re still burning cash,” and is likely to report negative earnings through 2011.
Making its earnings picture even less clear is the fact that Evergreen depends heavily upon the euro, which is taking a well-publicized beating these days.
In fact, Evergreen has the greatest “euro exposure” of any energy company Raymond James covers. The euro accounted for 84 percent of the company’s first-quarter sales.
“Should the euro continue to fall, that obviously has a detrimental effect on ESLR’s earnings,” Morris said.
In April, Evergreen made a $165 million convertible note offering, essentially selling company debt to investors in order to pay off other debts.
The notes sold are secured by a first priority lien “on substantially all of the assets owned by Evergreen Solar and the guarantors” with certain exceptions, the company said.
While the offering brought in capital, it came at a price.
“That’s very expensive money,” Molchanov said, explaining that the notes carry an interest rate of 13 percent.
Under terms of that and a previous offering, “a delisting from a national exchange market could result in a default, requiring the company to pay all of the outstanding notes in cash,” the company warned in an SEC filing.
What Evergreen is doing is buying time until it can crank out solar panels from its factory in China. Its cash balance of $130 million “is adequate to get Chinese operations up and running,” Molchanov said, and the company hopes to do so by July 1.
Evergreen Solar did not respond to requests for comment.
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