This is how I see the Ballard/Daimler deal:
1. It is a very BIG endorsement of Ballard's technology as the
most likely to succeed in the automotive industry, by an
excellent company who knows that industry better than any of us.
2. Daimler is buying Ballard, paying $35/share, which is pretty
close to market price before the news broke. This assumes a value of
$56 million for Daimler's fuel cell stack technology and related assets.
Whether this is fair or not, I don't know. It is definitely worth
something, esp. the assets, and my impression of Ballard's management
is that they are pretty sharp, so let's say it has a minimum fair value
of $28 M, that means Daimler is paying $30/share. In large private
placements, the price is usually a significant discount to the market
price, so this is no different.
3. The stock is not really diluted, since the infusion of capital
equals the new issued stock - its a wash. Yes, future earnings
are diluted by 25%, but Ballard would eventually need the capital
anyway, and this way they save the (5%?) commission to a brokerage
house.
4. The new company being formed does NOT replace Ballard, nor does
it get Ballard's fuel cell technology. This is *the* big misunder-
standing here, as far as I can see. The new company will BUY the fuel
cells from Ballard, who retains patent, etc. The new company will
build ENGINES which use the fuel cell, so Ballard is splitting off
that part of it's business, yes. But if I am not mistaken, that was
never Ballard's core business anyway. They needed to do it in order
to prove the viability of their product. Now there is a new co.
to do this, as well as market the engines. Daimler can do this
part better than Ballard, so it is a good deal for Ballard.
So Ballard does NOT lose 67% of its earnings potential in this deal.
On the contrary, it gets a dedicated OEM/marketing channel. It
will still get 100% of fuel cell revenues. It will just miss out
2/3 of the *mark up* when the new co. sells it to an auto manufacturer
or the next middleman along the pipeline. And Ballard will get 1/3 of
the revenues from ENGINE sales, too. Daimler's sales force and
marketing channel are extremely valuable here. Great deal for Ballard!
I had expected that Ballard would have to sell its fuel cells to
independant OEM's who built engines. This new arrangement means Ballard
in fact has some control over the manufacturing and marketing of the
products, and some of the profits, which otherwise would have been
pocketed 100% by the OEM.
5. Ballard can still sell fuel cells independantly to other customers,
although (I expect) not for automotive use.
6. This deal will accelerate Ballard's time to market considerably,
and will make it much harder for competitors to catch them. It is
the first major choice by a big auto player, and tells the world
load and clear that of all the future automotive technologies out
there, Daimler-Benz chose BALLARD!
To me, this is EXCELLENT news for Ballard shareholders. I believe the
drop today is the "shakeout" of nervous investors - after all, Ballard
has held up pretty well in this downdraft, and people are looking to
take profits. Ballard has made a great leap towards commercialization
of the fuel cell, and with Daimler's endorsement/buy-in, I expect it
will get attention from some of the institutions who until now considered
it "too risky".
(In case you haven't guessed, I own shares! ;o)
Enjoy the ride!
Garth. |
