March 17, 2014

ENERGYSOLUTIONS REITERATES BLEAK OUTLOOK AFTER FIRM ADVISES ‘NO’ ON ECP DEAL

By ExchangeMonitor

After a major proxy advisory firm officially advised shareholders to vote against Energy Capital Partners’ bid to purchase EnergySolutions, the company this week sought yet again to illustrate just how dire its financial situation will be if shareholders shoot down the acquisition proposal. In its official advisory, ISS claimed that EnergySolutions was overstating its bleak position as a standalone company should the deal be voted down. But in a presentation filed April 15 with the Securities and Exchange Commission, EnergySolutions reiterated its dire warnings that “analysts highlight potentially significant downward pressure on the share price if the ECP transaction does not close and the capitalization structure is not amended.” Forced to remain a standalone company, EnergySolutions would serve as a “fundamental risk” for shareholders, the company wrote. See EnergySolutions’ presentation here.

ISS suggested in its report that EnergySolutions should account for its $200 million in restricted cash tied up as collateral for the Zion nuclear plant decommissioning project. If that was part of the company’s valuation, ISS said it would estimate shares as being worth between $7.15 and $6.35—more than 50 percent higher than the current ECP offer. However, EnergySolutions said in the April 15 presentation that “management’s forecast requires investment of restricted cash in future decommissioning projects.” ISS argued in its April 9 report, “any reinvestment of the cash in future decommissioning projects would generate additional future cash flow and shareholder value.” Therefore, ISS wrote, “If no value is assigned to the $200 million in restricted cash now, shareholders will never be compensated for these future cash flows and value generation. This alone may suggest that value should be assigned to the restricted cash.” But EnergySolutions said it has accounted for future decommissioning projects in its fairness opinion, and criticizes ISS for failing to consider future restricted cash likely to be associated with future decommissioning work.

Still, without accounting for the $200 million, ISS estimated shares are worth between $4.13 and $4.93. ECP’s $4.15 per share acquisition bid is “barely above” ISS’ calculation for the most bearish scenario, ISS wrote. EnergySolutions disputed that claim, however, saying the ‘bearish’ scenario is actually what it considers the “expected base case.”

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