WealthBuilder99 wrote: Hi folks,
I've been giving this a lot of thought and wanted to share a theoretical structure for the future of Pyro & HPQ. There has been a lot of speculation around Pyro acquiring HPQ, after all why not since Pyro would want to protect and benefit from its technology processes it has developed. There will be future threat to HPQ (via takeovers) from battery manufacturers looking to secure supply of nano powders and lock up a competetive advantage. Bernard has admitted such in previous interviews.
Currently, the arrangement with HPQ is complex ie Pyro owns shares/warrants of HPQ plus a 10% royalty on all future revenues (there is minimum payments associated with this). Separately, Pyro owns a 10% royalty on the HPQ Nano subsidiary with option to convert into a 50% equity stake. More arrangements like this will be created as new subsidaries are formed for additional processes (for example, in the next few weeks one should be announced regarding fumed silica. This was mentioned during the latest HPQ AGM).
Consider the following structure, which I think would benefit all shareholders while being synergistic.
My Proposition:
Pyro has long discussed the eventuality of spinning out the additive division to reduce complexity. What if the additive division was spun out along with the Pyro-owned HPQ assets and royalties and then merged with HPQ. This could also be done in a reverse-takeover where HPQ acquires Additive and changes it's name (this may be easier as HPQ is already listed. Removes the need to list a new company via IPO or takeover of a shell company).
Benefits to both:
- Complexity for Pyro & HPQ would be significantly reduced. 100% of HPQ Nano would be owned under one roof. The royalties would be eliminated in exchange for equity in the combined new company. This would make the new company significantly more attractive to larger and institutional investors. (Combined company would own 100% of all tech, profits and assets).
- Expand on the Pyro/HPQ relationship. Bernard could head up the entire company (increased responsibility). Builds on the personal relationship between Bernard and Peter (which seems very healthy)
- Seeing as PyroGenesis & Quebec government would be some of the largest shareholders of the combined company, it would better protect the company from potential acquirers / hostile takeovers
- Better unites strong and loyal shareholder base of both HPQ & Pyro
- Using the stool metaphor both Peter and Bernard have used, the combined company would be a stool with a dozen legs. Silicon nano powders for multiple large industries plus high-value niche markets (batteries, hydrogen & other), titanium metal powders, and other hinted at metals for future markets.
- Synergistic, adds value to both groups of shareholders
- Reduces risk and complexity
- Attracts wider investment
Benefits to PyroGenesis:
- Reduces complexity of the company. Would be left with plasma torches and waste-to-energy (Drosrite, RNG & other systems including US Navy etc) divisions
- Solves finding a CEO for long discussed spin-out of Additive
- Locks up and secures the technology they have developed for HPQ
- Greater benefit to shareholders with exposure to 100% of HPQ Nano plus Additive under one roof (eradicates the shareholder dilemma of deciding whether to buy Pyro or HPQ. Existing Pyro shareholders would receive shares of Additive in the spin-out
- Pyro shareholders would have exposure to 100% of all HPQ subsidiary companies and revenue streams
- Simplifies balance sheet (would hold just the combined Pyro Additive company on its balance sheet)
Benefits to HPQ:
- Increases exposure and benefits of assets, future revenues (currently, less than 50% of HPQ Nano profits would be attributed to HPQ shareholders, with 10% royalty and assuming 50% equity stake in HPQ Nano option is exercised). Shareholders would now control 100%.
- Would eliminate vendor payments to Pyro
- HPQ would benefit from near-term revenue from Additive division ie sale of titanium powders, while they continue to develop future technology / processes. This would attract a wider shareholder base. (shareholders keep asking when is revenue)
- Would reduce risk of future dilutiion as revenues from Additive would fund any future research and pilot plants etc.
- Protects HPQ from hostile takeover. Combines loyal shareholder base of both companies. Other major shareholders would be Pyro and thus Peter, as well as the Quebec government.
- Reduces complexity, considering multiple different royalties and partial equity stakes in subsidiaries (I'm assuming a similar agreement will be made around the fumed silica subsidiary Pyro & HPQ each owning 50%).
- Reduced complexity will attract broader investment from larger investors and instiutions. A company that owns 100% of all its technology, assets and revenues is much more attractive than joint-venture type arrangements.
Cons:
- This biggest obvious con would be how to structure the exact terms that would be fair to shareholders of both companies and minimize dilution. It would be an equity transaction (no cash involved).
- Pyro would be losing revenue streams in both its sale of research and IP to HPQ, as well as royalties from future revenues of HPQ (however it would gain additional equity exposure).
- HPQ shareholders may not want exposure to the additive side and prefer the pure-play (however they would benefit from 100% ownership of equity and revenues of HPQ subsidiaries).
Conclusion:
Overall, it seems to me such a transaction would build on the strong relationship between HPQ and Pyro, be synergistic, reduce risk, add value, better unite the combined loyal shareholder base, protect the IP from hostile takeovers, reduce complexity of both companies and make the combined entity much more attractive to institutional investment.
I'd be happy to hear the thoughts of others on such a move and hope Bernard and Peter would at least consider such as there appears to be great benefit for both parties and shareholders.
Thoughts to ponder - Enjoy your weekends - Cheers.