There's a wind blowing through Irish investment group NTR and it's not being generated by its turbines in the United States.
Last weekend, the Sunday Times reported that a draft agreement has been put in place to sell NTR’s wind farm business in the United States, possibly followed by a tender offer for shares that would allow shareholders to exit their investment in this unlisted plc.
This is a plan drawn up by Woodford Capital, a vehicle controlled by NTR chairman Tom Roche and his family, following months of discord over strategy with certain shareholders, notably One51, with a 23.56 per cent holding and Pageant Holdings, with a near 10 per cent stake.
In effect, it’s a Woodford-led privatisation of NTR. The Roches control about 40 per cent of NTR and support a strategy that would involve the company investing in wind projects in Ireland, Britain and Scandinavia. This plan has been promoted publicly by chief executive Rosheen McGuckian.
One51 and Pageant have no interest in this strategy. They would prefer that NTR’s US business, Wind Capital Group (WCG), be sold now to capitalise on a bubble for such assets in the US , and want full value for the other assets NTR holds.
WCG is a top-class asset that has been built out and will generate stable revenues and profits over time based on purchase agreements signed with two utilities. It should be very attractive to pension funds or private equity groups seeking yield.
In its pre-crash pomp, NTR was one of the biggest cash cows in the State, famous for operating the West Link and East Link toll bridges in Dublin. The State paid it €600 million to buy out its West Link concession in 2007. About the same time, NTR sold Airtricity to SSE in a deal that put a €1.1 billion equity valuation on the energy business.
However, since them, it has squandered a lot of shareholder cash on a number of duff investments, notably in waste management and solar. Its annus horribilis ended in March 2011 when it recorded a €381 million loss. It was one of the biggest corporate losses ever recorded in Ireland, outside of the banks. It was up from a €285 million loss in the previous 12 months.
In those two years, its racked up losses of €394 million from discontinued operations and booked impairment charges of €164 million on various assets.
It’s worth noting its US solar business had losses of €312 million over the two-year period. Its revenues were a paltry €18,000.
Directors’ emoluments (everything from fees and salaries to share-based payments) over this period of unprecedented losses came to a hefty €10.4 million.
NTR is an unlisted company, whose shares trade on a grey market. The share price yesterday was €1.60. With 97.7 million shares in issue, that gives it a market valuation of €156.3 million.
One51 and Pageant believe this significantly undervalues NTR. For a start, NTR has cash and cash equivalents of about €110 million. In addition, the US wind business is conservatively valued at $800 million (€615 million). When debt is stripped out, there’s an equity value of more than €300 million.
On a conservative basis, you’re now looking at combined assets of €410 million or €4.20 a share. There are other rump assets (water, toll roads and energy storage among them), but their value would probably net off against a tax liability relating to its M50 West Link compensation payment dating from 2008.
My understanding is the Woodford proposal was tabled in early July but has yet to be signed, sealed and delivered.
Curiously, given that it is a plc with about 2,000 shareholders, NTR has made no announcement about this plan. At the weekend, it issued this statement: “It is not the company’s understanding that there is such an agreement and no such agreement has been put before the board of NTR. Furthermore, it is the responsibility of the board to determine what is in the best interests of all the company’s shareholders.”
This raises more questions than it answers given Tom Roche is NTR's chairman and Conor Roche is its business development director. How could they have drafted such a radical proposal for NTR without sharing the information with their fellow board members? Isn't chief executive Rosheen McGuckian in the loop on this plan?
There’s also no mention of this plan in the notice of the annual general meeting distributed to shareholders recently. The AGM will be held on September 4th.
One51 is represented on the board by its chief executive Alan Walsh, while Pageant is unrepresented at board level. NTR has three other non-executive directors: Brian Kearney, a board member for a number of years, and Christopher Hunt and Charlotte Valeur, who are more recent recruits.
The annual meeting is the obvious platform for Roche or, if he feels conflicted given his control of Woodford, one of the non-execs, to outline the plan for NTR’s future that has been drafted behind the scenes.
If they don’t, investors will be well within their rights to ask what is going on at NTR and why they have been kept in the dark about all of this.