Positive news for Tecogen Inc. (TGEN – $3.73), as the Securities and Exchange Commission (SEC) declared effective the Company’s registration statement in connection with its planned merger with American DG Energy (NYSE Mkt: ADGE). A special meeting will be held on May 18, 2017, where shareholders can vote in favor or against the merger. When a majority of shareholders votes in favor, the merger will be formally concluded shortly after the special meeting.
Upon completion of this acquisition, Tecogen shareholders are expected to own approximately 81% and American DG shareholders are expected to beneficially own approximately 19% of the combined company.
If successful, the transaction will create a vertically integrated clean technology company able to offer equipment design, manufacturing, installation, financing, and long term maintenance service.
The seeds for this merger were sown in early November 2016 when the Boards of Directors of both companies unanimously approved a definitive agreement under which Tecogen would acquire all of the outstanding shares of American DG in a stock-for-stock merger.
If the proposed merger is consummated, each share of American DG common stock will be exchanged for 0.092 shares of Tecogen common stock, valuing American DG at an approximately 27% premium to the company’s closing share price at the time of the announcement.
The combined company will retain the Tecogen Inc. name and be led by Co-Chief Executive Officers John Hatsopoulos and Benjamin Locke.
Vision Behind the Merger
- Make Tecogen More Competitive – American DG Energy offers On-Site Utility energy solutions without any capital or start-up costs to the customer and at lower costs than charged by conventional energy suppliers. Consequently, bringing American DG under the Tecogen umbrella allows Tecogen to offer a cost-free-installation option to customers without access to financing, sufficient capital on hand, or for those who may not be interested in owning and maintaining the equipment. This will make Tecogen a vertically integrated clean technology company that is well poised to compete with other distributed generation peers offering in-house financing arrangements.
- Give Tecogen a More Stable Revenue Base – Approximately half of the revenue generated by the merged entity will come from stable, long-term contracted sources (Tecogen Service revenue and American DG Energy revenue). This revenue base will provide a reliable funding source for both operating expense and growth initiatives. In addition, it will make the combined company’s revenue profile more predictable, reducing the revenue volatility caused by somewhat cyclical equipment sales and installations.
- Derive More Profits and Savings for Shareholders – Shareholders of the combined company will benefit from Tecogen’s ongoing growth initiatives and joint venture interests, such as the automotive emissions control joint venture ULTRATEK and the cogeneration joint venture TTcogen. Moreover, the combined companies can benefit from approximately $1 million expected general and administrative savings as duplicative functions will be eliminated.
The merger between Tecogen Inc. and American DG Energy, Inc. is nearing its final stage with the acceptance of the registration statement by the SEC. Once the merger is ratified by the stakeholders of both companies, the combined entity will soon thereafter become a fact.
The existing customers of American DG will add a steady, predictable income to Tecogen’s bottom line. This should help grow the Company in many different ways. Buy recommendation.
|Smallcaps.us Advice: Buy||Price Target: $8.41||Latest Company Report (pdf)|
|For important disclosures, please read our disclaimer.|