18 September 2014

Emcore selling space solar business to Veritas Capital

Emcore Corp of Albuquerque, NM, USA, which makes compound semiconductor-based components and subsystems for the fiber-optic and solar power markets, has entered into a definitive agreement for an affiliate of private equity firm Veritas Capital to purchase its Space Photovoltaics business for $150m in cash (subject to working capital adjustments) and the assumption of certain liabilities. Subject to approval by Emcore’s shareholders and other customary closing conditions, the transaction (which is not subject to a financing condition) is expected to close in December or January.

In connection, an affiliate of Veritas has entered into a voting agreement with certain shareholders of Emcore (including certain directors and officers of the company) that control about 11% of the voting power of the firm, under which they have agreed to vote their shares in favor of the transaction.

Founded in 1998 and is based in Albuquerque, Emcore’s Space Photovoltaics business provides products for space power applications including high-efficiency multi-junction solar cells, coverglass interconnected cells (CICs) and complete satellite solar panels, along with terrestrial applications including high-efficiency multi-junction solar cells for concentrating photovoltaic (CPV) power systems.

The assets to be sold comprise substantially all of Emcore’s Photovoltaics reporting segment, as well as all rights to the buildings owned, and includes about 275 staff in Albuquerque. The Space Photovoltaics business fiscal 2013 revenue was $70.5m.

“The management and employees at Emcore have an established history of providing leading technology and reliable products to the worldwide satellite industry,” comments Veritas Capital partner Benjamin Polk. “We look forward to continuing this excellent track record under our ownership and to working with the Space Photovoltaics team to expand the business,” he adds.

Veritas invests in companies that provide critical products and services to government and commercial customers worldwide including those operating in aerospace & defense, healthcare, technology, national security, communications, energy and education.

“Veritas’ proven track record of fostering growth in high-technology and defense industry companies makes it an excellent fit for Emcore’s Space Photovoltaics business,” says Emcore’s Dr Hong Hou president & CEO. “Emcore’s board of directors and management team believe this transaction will benefit our satellite customers while providing considerable value to our shareholders,” he adds. “Veritas' industry expertise and financial resources will enable the business to continue to provide its customers with the reliable, high-performance products and best-in-class customer service that they have come to expect, while also representing a platform from which to grow the business.”

Tax benefits preservation plan

Emcore’s board of directors has adopted a Tax Benefits Preservation Plan (rights plan) to help preserve the value of net operating losses by reducing the risk of limitation of net operating loss carryforwards and certain other tax benefits under Section 382 of the Internal Revenue Code. The value of the tax benefits could be reduced if Emcore experiences an ‘ownership change’ under US federal income tax rules, which occurs if one or more ‘5% shareholders’ (as defined under US federal income tax laws) have aggregate increases of 50% in their Emcore ownership over a three year historic period. The rights plan reduces the likelihood that Emcore will experience such an ownership change by discouraging any person or group from becoming a 5% shareholder or increasing their Emcore ownership if they already are a 5% shareholder. In connection with the rights plan, Emcore has declared a dividend of one right for each share of common stock outstanding as of the close of business on 3 October.

Strategic alternatives

In December 2013, Emcore’s board of directors formed a Strategy and Alternatives Committee consisting of Steven Becker (chairman), Stephen Domenik and James Tegnelia. The committee retained Raymond James as advisor. Over the past nine months, the committee has been working diligently to review a broad spectrum of alternatives. The sale of the Space Photovoltaics business to Veritas is the first major action resulting from the review of strategic alternatives. The committee and the entire board continue to work closely with Raymond James in reviewing a wide variety of alternatives to increase shareholder value. In addition, the board views the tax benefits as a significant asset, and the announcement of the rights plan indicates the board’s intention to take steps to preserve that asset.

The management team has undertaken a thorough review of the remaining operations and has implemented significant cost-reduction measures. The firm says that it has seen an improvement in the financial performance and the market conditions in its Fiber Optics business. In conjunction with the divestiture of the Space Photovoltaics business, Emcore will continue to review and implement various initiatives to further reduce the cost structure. The board believes that the remaining business can achieve EBITDA break-even, excluding stock compensation, amortization, accretion and other items, by September 2015.

See related items:

Emcore quarterly revenue up 33% year-on-year to $44.6m

Emcore’s CPV order boom to drive spin-off

Tags: Emcore

Visit: www.emcore.com

Visit: www.veritascapital.com