Ballard sells German unit to DaimlerCrysler, Ford
2005-06-23 14:55 ET - News Release
Ms. Rebecca Young reports
BALLARD SIGNS AGREEMENT TO SELL GERMAN SUBSIDIARY TO DAIMLERCHRYSLER AND FORD; TRANSACTION REDUCES CASH CONSUMPTION AND PAVES THE WAY FOR NEXT GENERATION AUTOMOTIVE PROGRAM DEVELOPMENT FUNDING
Ballard Power Systems Inc., DaimlerChrysler AG and Ford Motor Co. have signed an agreement for the previously announced sale of Ballard's German subsidiary, Ballard Power Systems AG (BPSAG), to DaimlerChrysler and Ford. All figures are reported in United States dollars, unless otherwise noted.
"Completing this sale will have four key benefits to Ballard," said Dennis Campbell, Ballard's president and chief executive officer. "First, it provides immediate cash benefit to Ballard with recovery of at least $20-million in expenses incurred since August, 2004, and a reduction in annual cash consumption of approximately $25-million. Second, our committed and outstanding share capital is reduced by 14 per cent on a fully diluted basis. Third, it initiates the fourth alliance agreement and the next-generation development agreements with our alliance partners, Ford and DaimlerChrysler, under which our partners will fund up to $59-million for the development of our next-generation vehicular fuel cell and electric drive system. Finally, by divesting BPSAG to our alliance partners, we can focus on our core competency, fuel cell development and on reaching the targets outlined in our technology road map."
The transaction is subject to approval by Ballard's shareholders at a special meeting of shareholders to be held in Vancouver on Aug. 29, 2005. The transaction is also subject to any required approvals of regulatory agencies in Canada, the U.S. and Germany, all of which are expected to be received in August, 2005. Ballard will issue a proxy circular related to the transaction to all shareholders at the beginning of August, which will contain more details about this transaction and the terms of the principal transaction agreements. The transaction is expected to close shortly after shareholder approval is granted.
Additionally, the acquisition agreement contemplates that after shareholder approval, the parties will complete the transaction, including entering into the fourth agreement and development agreements for the next-generation vehicular fuel cell and electric drive train.
The board of directors of Ballard has determined that the transaction is in the best interests of Ballard and is fair to its shareholders, and has approved the transaction. A committee of independent board members retained RBC Capital Markets as financial advisers. In addition, Ballard's management retained Goldman Sachs as financial advisers.
"The acquisition agreement marks an important next step toward series production of fuel cell technology," said Dr. Thomas Weber, member of the board of management of DaimlerChrysler AG, responsible for research and technology, development, Mercedes Car Group. "It is a consequent and strategic move which allows all partners to concentrate on their core competencies, thus bringing the best results for a strong and successful alliance and strengthening its position in global competition."
"We believe that fuel cell technology will play an important role in future mobility. As such, Ford Motor Co. is committed to the continued success and strength of this alliance," said Dr. Gerhard Schmidt, vice-president, Ford research and advanced engineering. "This agreement also enables us to develop and refine our systems engineering in a way that maximizes the unique attributes of our vehicles and allows us to integrate the systems knowledge gained from our successful hybrid-electric vehicle development."
Key terms of the acquisition agreement
Upon completion of the transaction, Ballard will continue to be responsible for the design, development and manufacture of vehicular fuel cells for its alliance partners. DaimlerChrysler and Ford will be jointly responsible for the design, development and manufacture of the vehicular fuel cell support system. Under the terms of the acquisition agreement:
DaimlerChrysler and Ford will return to Ballard nine million Ballard common shares in exchange for Ballard's 50.1-per-cent interest in BPSAG. These shares will be cancelled;
the forward sale agreement, which committed Ballard to purchase the remaining 49.9-per-cent interest of BPSAG from DaimlerChrysler in exchange for the issuance of 7.6 million shares of Ballard to DaimlerChrysler, will be cancelled. As a result, BPSAG will be wholly owned by DaimlerChrysler and Ford;
Ballard will be reimbursed at closing for BPSAG net operating expenses incurred between Aug. 1, 2004, and the closing date of the transaction. This payment, net of other purchase price adjustments, is estimated to be at least $20-million;
Ballard will receive a royalty free licence to all existing vehicular fuel cell support systems technology for use in non-vehicular applications; and
Ballard will provide, under separate contract, field support and warranty services for the demonstration fuel cell buses in Europe, Australia and China. This contract is worth approximately $3.6-million in revenue to Ballard.
The fourth alliance agreement and development agreements
At closing, Ballard and its partners have agreed to sign the fourth alliance agreement and agreements for the next generation automotive fuel cell and fuel cell vehicle electric drive development programs. A complete discussion of these agreements will be provided in Ballard's proxy circular, which will be delivered to shareholders at the beginning of August.
The fourth alliance agreement reflects the following major changes to the existing third alliance agreement:
changes to reflect the transfer of BPSAG to DaimlerChrysler and Ford, such as amending the existing non-competition arrangement to restrict Ballard from competing with the automotive OEMs in relation to automotive fuel cell support systems, ensuring DaimlerChrysler and Ford have the freedom to operate in automotive fuel cell support systems, and ensuring all three parties are able to co-ordinate their separate development efforts in these areas;
changes to provide each of the parties with greater flexibility while respecting the principles upon which the alliance is based, such as providing Ballard with an enhanced ability to deal with non-alliance customers, providing DaimlerChrysler and Ford with greater clarity regarding their rights in the event Ballard's technology does not remain competitive, including, under certain limited circumstances, the right to withdraw from the alliance, and in exchange for $12.5-million, payable to Ballard through the return of three million Ballard common shares owned by Ford, the fourth alliance agreement will impose no restrictions on Ford with respect to hybrid-electric drives. Ballard will retain the right to obtain a licence from Ford to any electric drive patents that Ford develops for its hybrid vehicles, for use in fuel cell and battery powered vehicles;
changes to ensure that DaimlerChrysler and Ford do not lose their existing special shareholder rights due to changes in their Ballard holdings resulting from this transaction; and
changes to support Ballard's plan to further develop its manufacturing capabilities, including a commitment from DaimlerChrysler and Ford to source a minimum 25 per cent of their vehicular fuel cell requirements from Ballard, subject to standard commercial terms, if they acquire licence rights from Ballard to produce vehicular fuel cells in the future.
The development agreements will provide for the following:
financing from DaimlerChrysler and Ford of up to $37-million for the development of Ballard's next-generation vehicular fuel cell, subject to the completion of work and achievement of technical milestones by Ballard; and
financing from DaimlerChrysler and Ford of up to $22-million for the development of Ballard's next-generation electric drive for fuel cell vehicles, subject to completion of work by Ballard.
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