A Pioneer up for Grabs

Ricardo Bayon on June 15, 2009 Comment

One of the big stories among carbon market circles over the last month is the story of how a variety of bidders are now trying to take carbon project developer, EcoSecurities, private. Most people in this day of post-internet bubble hysteria are very familiar with the concept of taking a company "public" (doing an IPO and selling shares in a company). Very few people, on the other hand, realize that the reverse can also happen, that groups with enough capital can buy out all the outstanding shares of a company and "take it private". But it does happen and it is currently looking like it might happen to one of the largest and most well-known carbon companies in the world (which, since not many are public, doesn't say a whole lot).

What does this mean? It is difficult to say. Some of us see it as a sign that capital is interested in the carbon space and is looking for a platform company to build an empire around. At a basic level, however, it says that out there, somewhere, someone with enough capital (somewhere around $200 million) to buy out the company believes it is currently under-valued. The fact that a bidding war has broken out for the company further suggests that more than one person (or group of people) have come to this conclusion. Which goes back to the first point: capital is beginning to take a greater interest on carbon.

But that is really only a proximate answer to the question of why EcoSecurities and why now. The deeper answer, I think, has to do with what is happening in the US. As a cap-and-trade bill (the Waxman-Markey bill) moves through the legislative process, people are beginning to see the dollars at the end of the tunnel. The logic is simple and compelling: When Europe created its Emissions Trading System in 2005 it set in motion a process that created a whole new market worth nearly $100 billion in 2008. If that happened in Europe, the US carbon market should eventually (probably in less than three years) be worth at least $100 billion.

Seen in that light, spending on the order of $200 million for a company that could profit from that growth seems, on the surface, like a wise move. Of course, we don't know what the final price tag will be, but still... When the first offer to buy out the company (coming from one of the company's original founders who recently left the company) was made, the offer was at 60 pence per share. At that time, shares were trading at considerably less than that. The latest bid (coming from the trading subsidiary of French energy company EDF) was at 75 pence a share. After that the shares rose to trade at around 77 pence per share. Today (June 15, 2009), the price was around 85 pence per share. Watch this space to see what it ultimately goes for. But more importantly, watch the company closely to see what happens if and when it sells.

I would argue that the ripple effect of carbon legislation in the US has already begun... Oddly enough (or perhaps it is naturally enough), one of the first shores to be hit is the UK.