Enbridge Move To Block Global Thermo Deal Not A Surprise
By STUART WEINBERG Of DOW JONES NEWSWIRES
TORONTO (DOW JONES)--A court filing by Enbridge Inc. (ENB) was scant on details as to why Enbridge wants to block Quantum Fuel Systems Technologies Worldwide Inc.'s (QTWW) proposed acquisition of Global Thermoelectric Inc. (T.GLE), a Global spokesman said.
Nevertheless, the Enbridge move doesn't come as a surprise, Mark Kryzan, director of corporate affairs at Global, told Dow Jones. That's because Stephen Letwin, the Enbridge official who sits on Global's board, abstained when the board voted on the proposed combination, he said.
Letwin is Enbridge's group vice-president, distribution and services. Officials from Enbridge weren't immediately available for comment.
As reported, Global said Thursday that Enbridge filed an application in the Court of Queen's Bench of Alberta opposing and seeking to restrain Global from proceeding with the proposed business combination. The plan is subject to the court's approval, the release said.
The proposed acquisition was announced April 9, an all-stock deal valued at C$75 million. It came several months after Global, Calgary, cut its workforce by 30% and hired a financial adviser to review strategic alternatives.
Enbridge bought C$25 million worth of Global's preferred shares in July 2000. At the time, Global's common stock was trading at C$24.50, Kryzan said.
In Toronto Thursday, Global is down 25 Canadian cents, or 9.3% to C$2.45 on about 44,000 shares. Enbridge is up 11 Canadian cents to C$46.31, while Quantum is down 7 cents to $2.10 on Nasdaq.
Enbridge Inc. (ENB) asked the court for the right to vote its preferred Global Thermoelectric Inc. (T.GLE) shares as a separate class, Enbridge spokesman Jim Rennie told Dow Jones. "We believe we are entitled to that sort of right and we want a voice in the decision because we...have some concerns about the way (the deal is) proceeding," Rennie said. "We certainly think it fundamentally alters the investment we have with Global today."
Enbridge, a Calgary energy company, invested in Global to help facilitate the development of solid oxide fuel cells for home use, Rennie said. Global's proposed arrangement with Quantum Fuel Systems Technologies Worldwide Inc. (QTWW), would see Global's fuel-cell division come under control of a non-public subsidiary of Quantum, he said, noting that Quantum has already indicated it would reduce the amount of cash spent on the development.
Last week, Global cut the staff of its fuel-cell division by one-third, or 47 employees, Rennie added. If the court grant Enbridge's motion, he didn't know if the company would have enough votes to block the transaction, he said.
Mark Kryzan, Global's director of corporate affairs, also couldn't say if the transaction would be affected if Enbridge's motion is granted. However, he did say that Enbridge would be entitled to about 800,000 Global shares if Enbridge's preferred shares were converted into common shares. At April 30, Enbridge had 29.17 million common shares outstanding.
Kryzan said there were no provisions regarding change of control in the July 2000 agreement between Global and Enbridge. "We aren't in breach of any of the agreements we have with Enbridge," he said. "I think the question to ask (Enbridge) is why do they oppose a deal that offers common shareholders an option for this company to go forward."
Rennie said Enbridge is also a Global shareholder and wants to protect its C$25 million investment. "We would like to see the fuel-cell developments proceed," he said.
Quantum president and chief executive Alan Niedzwiecki, said that's exactly what the company plans to do. "We intend to advance the solid oxide fuel cell and take the technology through to commercialization," he said.
Some analysts have speculated that Quantum's primary interest in Global is Global's C$95 million in cash and short-term investments.
Quantum, Irvine, Calif., has no intention of rescinding its offer for Global in light of the Enbridge court challenge, Niedzwiecki said. "We are full steam ahead," he said.
Enbridge Inc. (ENBR) isn't the only one opposed to Quantum Fuel Systems Technologies Worldwide Inc.'s (QTWW) proposed acquisition of Global Thermoelectric Inc. (T.GLE).
According to a preliminary proxy statement filed by Quantum May 7, Global director Glynn Davies resigned on April 1 "because of the divergence of views amongst the Global board with respect to the proposed transaction." The resignation came just ahead of a planned vote on the proposed deal, the circular said.
On April 8, the board voted in favor of a resolution authorizing Global to enter the agreement, the circular said. But the vote wasn't unanimous. In addition to the abstention by Stephen Litwin, the Enbridge representative, two of the seven remaining directors voted against the deal: Kerry Brown and John Howard.
The Global Web site identities Brown as the chairman and chief executive of Foundation Equity Corp., which holds an 8.9% stake in Global, the circular said. Officials from the Edmonton investment firm weren't immediately available for comment. Howard is identified as managing partner, Howard Kirkpatrick Associates, Chartered Accountants, on the Global Web site.
The circular also said that a resolution recommending that Global common shareholders vote in favor of the combination was considered, but didn't pass. Four directors supported the resolution while four voted against it, the circular said.
The board identified a number of potential disadvantages in its deliberations concerning the combination, according to the circular. These included Quantum's reliance on General Motors Corp. (GM), which accounted for 70% of Quantum's revenue in the nine months ended Jan. 31, 2003, the circular said. General Motors is Quantum's largest shareholder, the circular said.
Quantum is required to make a substantial level of expenditures on joint research and development with General Motors over the 10-year life of an agreement with General Motors, the circular said. The annual commitment may be too financially burdensome or may affect Quantum's ability to achieve profitability in the future, the circular said.
While the funding committment was waived by General Motors in 2002, similar waivers may not be granted in the future, the circular said.
In Toronto Thursday, Global closed down 25 Canadian cents, or 9.3%, to C$2.45. On Nasdaq, Quantum fell 3.7% to US$2.09.
Company Web Site: globalte.com, enbridge.com,
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