[cdn-nucl-l] Hydrogen fuel firms agree to merge

["Adam Mclean" <adam.mclean@utoronto.ca>]

Posted on November 11, 2004 in the Toronto Star and at:
http://www.thestar.com/NASApp/cs/ContentServer?pagename=thestar/Layout/Artic
le_Type1&c=Article&cid=1100128211281&call_pageid=968350072197&col=9690488638
51
Another Canadian hydrogen powerhouse.  Note that the Stuart family has
always been big supporters of nuclear energy.

Adam

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Hydrogen fuel firms agree to merge
Hydrogenics takes over Stuart Energy All-stock deal worth $155 million

TYLER HAMILTON
TECHNOLOGY REPORTER

Hydrogenics Corp., in a bid to bolster its presence in the emerging hydrogen
and fuel-cell market, offered yesterday to acquire Mississauga neighbour
Stuart Energy Systems Corp. in an all-stock deal valued at $155 million. 

The acquisition, one of the largest the sector has seen, would combine the
hydrogen generation and fuelling technologies of Stuart Energy, which has
been selling industrial hydrogen products for more than 50 years, with the
advanced fuel-cell technologies and testing equipment of Hydrogenics.

"Now is the time to invest, now is the time to make a difference ... now is
the time to pull ahead," said Pierre Rivard, chief executive of Hydrogenics.

Rivard said rising crude oil prices, dwindling supplies of non-renewable
energy, a deteriorating environment and the rapid expansion in worldwide
energy consumption are making the case for a hydrogen economy, where
zero-emission fuel cells running on hydrogen are expected to power vehicles
and buildings.

Jon Slangerup, CEO of Stuart Energy, said consolidation in the industry was
inevitable and the coming together of Stuart and Hydrogenics will challenge
Vancouver-based Ballard Power Systems Inc. as the leading brand in the
sector.

"We're in a race, a serious race, and those that create critical mass early
on and are able to focus on profitability early on are the ones that will be
able to command the future," said Slangerup, who will be an adviser to the
new company and move back to California.

"When the dust settles, this is going to be viewed as an industry-defining
combination that may well, in my view, surpass Ballard as the driver of the
marketplace," said Slangerup. "This deal accelerates everything."

Shares of Stuart Energy soared 84 cents, or 30 per cent, yesterday to $3.66
on the Toronto Stock Exchange, reflecting the premium on Hydrogenics' offer.

Hydrogenics has agreed to pay 0.74 of a share for each share of Stuart
Energy. Based on the closing price of Hydrogenics' stock Tuesday, the deal
works out to $4.14 for each Stuart Energy share - a 32 per cent premium
based on the 20-day average price of both company's shares.

The deal, which has the support of 37 per cent of Stuart Energy shareholders
and the company's board of directors, is scheduled to close in January,
2005, and is expected to be accretive to earnings. 

The companies, both headquartered in Mississauga about two kilometres away
from each other, began talking about merging three years ago but determined
then that the timing wasn't right. Rivard said talks were rekindled during
the summer and the decision was made to "join destinies."

Combined, the two companies will have $120 million in cash and short-term
investments and annual revenues next year around $50 million. The new
Hydrogenics will have 84 patents, 459 applications for patents and an
expanded global sales force.

Today, Hydrogenics has 225 employees and Stuart Energy has 170. Rivard said
the companies' two headquarters will be consolidated in the first half of
2005 and between 50 and 100 jobs will likely be eliminated.

Gary Brandt, chief financial officer of Hydrogenics, said annual savings of
about $8 million (U.S.) are expected once the two companies are fully
combined.

Some analysts wondered whether Stuart Energy, founded in 1948 by Alexander
Stuart and his son "Sandy" Stuart, should instead acquire Hydrogenics.

Stuart has shown strong growth in its industrial hydrogen business over the
years, giving it the resources to fund product investment as the hydrogen
economy unfolds.

The company reported third-quarter revenue yesterday of $5.5 million
(Canadian), a jump of 45 per cent compared to a year earlier and reflective
of growth projections for future quarters.

Hydrogenics, on the other hand, reported yesterday that its revenues had
shrunk to $3.5 million (U.S.) from $5.5 million a year ago because of
deferred shipment of products. Both companies have losses that are higher
than revenues.

"The revenue guidance on Stuart Energy is almost 50 per cent higher than
Hydrogenics for the year," said MacMurray Whale, an energy analyst with
National Bank Financial. Stuart's relatively strong performance has not been
fully valued in the company's stock, he said.

"The biggest problem, to be honest, is we just didn't have access to the
United States," said Slangerup, explaining why the deal makes sense.

Hydrogenics gives Stuart Energy products higher profile in the United States
and Hydrogenics gets much-needed access to revenues from Stuart's existing
industrial customer base.

Additional articles by Tyler Hamilton