EF Buyout PriceAt 10 cents EF has a market cap of approximately $10 million; that is ridiculously cheap and EF is a very misunderstood stock.
In December 2007, EF raised $144-million priced at $2.25 per unit and $2.60 for the flow-through shares. I assume, this capital has been substantially invested in the project as per the initial engineering and business plans.
In May 2008 EF entered a short term wind turbine financing facility for $135-million.
Therefore, the Dokie wind farm has a real capital asset base of $279 million and it is less then 1 year old. This is on sale in the market for $3 million and is ridiculously cheap.
The main problem at hand, is that the above short term financing facility, can not be swapped into a long term financing structure.
It is unlikely that EF can refinance on its own. Therefore EF will be sold as a company.
Canada's has a general corporate tax rate of 33.5 percent; this includes federal and provincial taxes.
EF will probably write down the Dokie project and its other wind projects by $150 million. This loss can create a $50 million profit, for a company with real earnings, such as Electric Utility Company. EF loss would be a tax loss carry forward to the company that purchases EF. On a EF buyout, this $50 million is a credit to existing EF share holders.
I estimate a fully constructed wind farm is easily worth the cost of the turbines installed, say $135 million. An existing large utility will be able to get the lowest cost financing on a long term basis.
Lets estimate, this asset has zero value to share holders as the debt and the asset cancel each other out. The electricity generated should pay a low cost AAA bond interest.
EF will earn green credits that are very valuable to existing coal fired utilities. Especially if they generate the green credits themselves. These benefits has value to an EF buyer and is a credit to existing shareholders.
EF has established itself in BC and other provinces. This has a value to an existing Electric Utility who is land locked in its own province by past operational history. This value is a credit to existing shareholders.
EF has a large asset base of wind projects. These can be used to get a foot hold in other markets. This benefit has value to a buyer and is a credit to existing shareholders.
I suggest that EF will be purchased by a Coal Fired Utility that will pay approximately $40 to $50 million for the complete EF company. It will probably be done on a paper for paper basis; it is a minute transaction for a major Utility.
Basically, EF tax loss carry forward pays the Utility to buyout EF. With all other credits and values given to the purchasing Utility.
It’s a good deal for the Utility, and the best deal, existing shareholders will get.
A $40 to $50 million company buyout would give approximately 38 to 48 cents per share.
A 30 cent buyout is very reasonable as a bottom line estimate.