Energy Conversion Devices (ENER) not likely to enjoy takeover

by Douglas McIntyre | October 14, 2009 11:24 am

Energy Conversion Devices (ENER[1]) seems to need to a takeover rumor to boost its stock. The latest one had Applied Material (AMAT[2]) buying the photovoltaic cell maker.

While it’s true that Applied is moving aggressively into the solar space, buying ENER adds little of value for Applied.

ENER makes thin-film photovoltaic (PV) solar laminates that are used in building integrated and commercial rooftop applications.

The company operates four plants in Michigan and one in Tijuana with a manufacturing capacity of 178 megawatts, and had announced plans to expand to capacities of 420 megawatts in FY2010 and 720 megawatts in FY 2011. By 2012, the company expected to manufacture 1 gigawatt of solar PV laminates.
Those plans were curtailed in March of this year when ENER was forced to halt production for several weeks in response to lowered demand. Some 70 employees were let go and ENER bailed out on its FY 2009 guidance.

The company’s shares hit a calendar year high of $20.51 in May, but that was still less than half the 52-week high of $48.83.

ENER purchased a British solar PV maker, Solar Integrated Technologies, in July 2009 for about $16 million. The move briefly boosted the shares back above $15.

Demand for solar PV panels has softened considerably, and because that is ENER’s main source of revenue, the company’s shares face a lot of downward pressure.

The company has also adopted a tax benefits preservation plan that is intended to save ENER’s net operating loss carryforwards. The plan makes it very costly for a potential purchaser of ENER to make a move on the company.
ENER’s fourth quarter revenues were awful; the company reported a net loss of nearly $16 million. Worse, the outlook for the first quarter of the 2010 fiscal year is for more of the same. The company expects business to pick up in the second half of 2010 and finish the year 10%-15% higher than FY 2009.

What then does ENER have that might motivate a potential buyer to make a serious offer? The company owns more than 1.5 million square feet of manufacturing facilities, mostly in Michigan. That’s the good news.
ENER’s own expectations from the effect of federal stimulus money are low, and the market for solar PV products is over-supplied. That’s the not-so-good news.

As long as ENER continues to unde perform, and its share price stays near its 52-week low of $10.14 there will be rumors of a takeover. But a serious offer seems unlikely until the company shows some new signs of life.

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