October is starting off with a bang for the clean energy stocks I follow. There were two significant announcements this morning, one with good news just getting better, and another making the best out of a bad situation.
Finavera Wind Energy (TSX-V:FVR, OTC:FNVRF) is making the best of a bad situation by putting itself up for sale. This makes sense for small wind farm developers, they are asset rich and cash poor. Banks have been very reluctant to lend to small asset developers, and so these companies are trading at a small fraction of the value of their assets.
Regular readers will be familiar with the story of another wind developer, Western Wind Energy (TSX-V:WND, OTC:WNDEF), which recently put itself up for sale as the result of pressure from a hedge fund. WND has more than doubled (from C$1.19 to C$2.45) in the two months since the announcement, and the company’s CEO expects a sale price of between C$3.75 and C$4.50 a share. I personally think the eventual sale price will be closer to C$3, but that remains a healthy return for shareholders in just a few months.
Finavera’s CEO, Jason Bak, also claims that part of his stock’s problem has been hedge funds. He said,
Ever since the award of our Electricity Purchase Agreements from B.C. Hydro in 2010, where we were the largest winner of wind power contracts in British Columbia’s history, we have focused on finding the optimal partner to unlock the value of the $2.5 Billion in contracted payments to Finavera Wind Energy. During this time we have dealt with adverse market conditions and short term hedge funds that have punitively sold stock against the interest of the long term shareholder. This has resulted in a significant difference between our market capitalization and our inherent value. We are optimistic that a corporate transaction will provide a solution where shareholders are part of a stronger platform to access the value of these assets and realize upside from the current Company capitalization.
If the results for Finavera are similar to those of Western Wind, we can expect the stock to rally for a few months as the sale process proceeds, perhaps reaching C$0.50 in early December, with an eventual sale somewhere above that level.