USEC Inc. (USU): Supreme Court to review Eurodif v. US - positive for USEC - Goldman Sachs - April 22, 2008
News
The US Supreme Court decided today that it will review the “Eurodif v. United States” case whereby a Federal Circuit court ruled previously that nuclear enrichment (SWU) is a service, not a good, and therefore not subject to tariffs. This announcement comes in response to an appeal to the Supreme Court made by USEC (along with the Solicitor General and Departments of Commerce, Defense, Energy, and State) regarding the Federal Circuit court’s original decision, from March 2005.
Analysis
The fact that the Supreme Court has chosen to review this case is a positive for USEC, in our view, as it provides a potential avenue to overturn a previous, unfavorable ruling. A decision is expected in late 2008 or early 2009. This case is critical to USEC; should the lower court’s decision be upheld and applied to Russian SWU, it could potentially facilitate full direct access into the US markets by Tenex and end the Russian Suspension Agreement, significantly increasing supply and pressuring SWU prices. Conversely, if the Supreme Court overturns the lower court’s ruling and considers SWU a good, this would likely enable enriched uranium to be subject to antidumping law and effectively uphold the current Russian Suspension Agreement. Notably, even if the Supreme Court upholds the Federal Circuit’s decision, we believe that USEC still has options outside of the legal arena. New legislation could be introduced to effectively mandate through law that enrichment is a good and not a service.
Implications
We view the Supreme Court’s decision to hear the case as a modest positive for USEC as it provides a potential arena to overturn the Federal Circuit Court’s unfavorable ruling. At a minimum, this also gives USEC additional time to continue to explore legislative options before a final ruling is passed down. There are no changes to our rating, price target, or estimates on the back of this news. |
