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Thursday, November 16, 2006

Evergreen Solar's $250 Million Securities Shelf; Why Did They Wait So Long?

Evergreen Solar (ESLR) has made a filing with the SEC to sell up to $250 million in mixed securities, otherwise known as a shelf offering. The stock has fallen 2% pre-market because of the dilution that can occur, and its market cap is only $608 million as is. What is unbelievable here is the timing.

Yesterday the closed at $8.94, but its 52-week trading range is $7.27 to $17.50. Its shares are well off the highs from earlier in the year when alternative energy stocks and other energy stocks were much higher because of soaring oil prices. So what is amazing here is why the company waited this long with the stock close to its lows. I won't fault a company for going to the capital markets to take advantage of a situation to bolster a balance sheet, but when you do it AFTER your stock loses almost 50% from having a more than 200% gain the year before it seems foolish.

None of the name analysts that follow the stock expect profits any time soon, so it isn't as though the company could hang its hat on the fact that it was generating any massive cash flows. The Sept. 30 balance sheet lists total assets at $211 million, with $162.7 million in current assets; and showed total long-term and current liabilities at $223.7 million.

So now they are planning securities sales to the tune of $250 million. The securities shelf is general like many with a list of common stock, preferred stock, depository shares, warrants, and debt instruments listed as possible securities. Here is how it lists its own use of proceeds: the net proceeds from the sale of securities offered by this prospectus will be used primarily for manufacturing expansions associated with EverQ and other opportunities, as well as for general corporate purposes, including working capital. We may also use a portion of the net proceeds to fund possible investments in and acquisitions of complimentary businesses, partnerships, minority investments, products or technologies. Currently, other than our commitments with EverQ, there are no commitments or agreements regarding such acquisitions or investments that are material. Pending such uses, we plan to invest the net proceeds in highly liquid, investment grade securities.

While this is at least being used for expansion capital and for possible acquisitions down the road, the company should have known about this back after the stock was a screaming eagle rather than just another money-losing alternative energy play that has already seen its huge run. This is a company that I have actually liked in the past because solar power makes so much sense and they have a history of actually selling solar panels and systems, BUT this shelf offering is indicative of management that is not out to maximize shareholder value. While the street may price offerings at a discount if shares are deemed lofty, you at least capture the momentum of the time. Maybe the company didn't know it would definitely need the extra plant capacity earlier this year, but optimistic management would have at least tried to take advantage of a stronger alternative energy stock market when it was there instead of waiting until the sector had cooled off.

If you were grading based on the timing and net effect of this offering for current shareholders, management would get a "D" or an "F" grade here for the timing of this secondary. The company had a $90 million convertible shelf filing last December, and at least that was while the shares were on the way up. But this makes you wonder just what the company was thinking.

Jon C. Ogg
November 16, 2006
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