Entegrus offer for town’s Essex Power shares “very attractive”: BDR

 

EPOWERBy Ron Giofu

 

The town has heard from independent valuator BDR on how much its shares in Essex Power are worth and have also heard from the public on its thoughts of what should be done with the shares.

While the public meeting on the matter occurred Tuesday night after this issue of the River Town Times went to press, town council heard from BDR president John McNeil Monday night of his firm’s analysis of the offer and the town’s shares.

(UPDATE: The public overwhelmingly urged town council to keep its shares and find savings elsewhere in its budget during Tuesday’s public meeting. Story to come in next week’s issue.)

McNeil noted the offer the town received of $12 million but the analysis his company did of Amherstburg’s 14 per cent share valued the shares at $8 million. McNeil noted there was a “value gap” between Entegrus’ valuations and that of BDR, with the overall aggregate value of the organization showing Entegrus’ valuation be roughly $100 million versus an $80 million estimate by BDR.

Interest rates play a vital role in valuation of shares, he noted, as the lower the interest rate means the higher the share value. Noting he’s not an economist, McNeil added that he is of the understanding interest rates will be on the rise.

McNeil added it is a “very attractive” time for the town to look into selling its interest in Essex Power.

“While we don’t know the future, it’s not a bad time to consider the proposal in front of you,” he told council. “BDR is of the opinion, from a financial point of view, this is a very attractive opportunity for the town to proceed to the next step.”
Councillor Diane Pouget noted the $12 million would come in one lump sum, should the town agree to sell, as opposed to annual dividends. She wondered how that would impact the tax rate. Interim director of finance Wendy Dade acknowledged the town wouldn’t see the $200,000 annual dividend that is budgeted for but the town would reduce its need for long-term borrowing for capital projects if the town were to gain $12 million from the sale. She believed savings on principal and interest payments would be greater than $200,000.

Dade added that $200,000 represents one per cent of this year’s budget.

Councillor Bob Pillon questioned if Entegrus were to go to another municipal shareholder in Essex Power, would the town have a smaller share. Solicitor Ed Posliff added that the town would likely have a smaller share than it currently has and the town’s influence with Essex Power would decrease.

Pillon also referenced a comment in the River Town Times which stated that shares could rise to $23 million over the next decade but McNeil said while the value would increase, he didn’t believe it would be by that much.

“We have no basis to know what is going to happen ten years from now,” he added.

McNeil also stated that reasonably expected growth “is incorporated in the valuation that BDR came up with” and as well as “in the offer that you got from Entegrus.”

According to a press release sent out later in the evening Monday, Entegrus said it “is pleased that the results of an independent valuation by BDR North America Inc., has confirmed that the offer it has made to the Town of Amherstburg for its shares in Essex Power is very attractive.”

The release also stated that, “according to BDR, the Entegrus offer represented $4 million more than the value BDR estimated the shares are worth.  Furthermore, BDR acknowledges that their $8 million valuation does not include any discount that would typically be applicable when purchasing minority interests in corporations.”

“We are happy with the findings”, stated Jim Hogan, president and CEO of Entegrus.  “To us, our offer is justified as we have the ability to share best practices and gain synergies thus increasing the returns for all shareholders which includes the Municipality of Leamington, and the Towns of Tecumseh and LaSalle.

Additionally, Entegrus believes “the investment creates the potential to work together to ultimately reduce upward electricity distribution rate pressures for both Entegrus and Essex Power customers.”

 

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