NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR FOR RELEASE, PUBLICATION,
DISTRIBUTION OR DISSEMINATION DIRECTLY, OR INDIRECTLY, IN WHOLE OR IN PART, IN
OR INTO THE UNITED STATES.
Just Energy Income Fund (TSX:JE.UN) ("Just Energy") is pleased to announce that
its wholly owned subsidiary, Just Energy (U.S.) Corp., has entered into an
Equity Interest Purchase Agreement (the "Acquisition Agreement") pursuant to
which it has agreed to acquire (the "Acquisition") all of the issued and
outstanding membership interests of Hudson Parent Holdings, LLC and shares of
the capital stock of Hudson Energy Corp. (collectively, "Hudson"). Hudson is a
privately held energy marketing company operating in New York, New Jersey,
Illinois and Texas, primarily focused on the small to mid-size commercial
customer market. Just Energy management believes that Hudson is a strong
strategic fit and will significantly accelerate Just Energy's development as a
leading North American energy marketing business.
In order to fund the purchase price for the Acquisition and related costs, Just
Energy has entered into an agreement to sell to a syndicate of underwriters $330
million aggregate principal amount of 6.00% Convertible Extendible Unsecured
Subordinated Debentures (the "Convertible Debentures"). See "Acquisition
Financing" below.
The Acquisition would have been approximately 16.2% accretive (10.3% on a
fully-diluted basis) to the Fund's Distributable Cash per Unit on a pro forma
basis for the twelve months ended December 31, 2009. All dollar amounts referred
to in this release are in Canadian dollars unless otherwise noted.
Acquisition Consideration
The consideration for the Acquisition will be approximately U.S.$304.2 million,
subject to customary working capital adjustments, payable as to U.S.$295.0
million in cash at closing and a post-closing deferred payment of U.S.$9.2
million, payable in four equal quarterly instalments during the first year
following closing. Just Energy anticipates that associated transaction and
financing costs will bring the total purchase cost to approximately $330
million.
There are purchase price adjustments in the event that the transaction does not
close on the scheduled date of May 7, 2010. Of the aggregate purchase price,
U.S. $22.5 million will be held in escrow for 18 months as security for the
sellers' indemnity obligations under the Acquisition Agreement.
The Acquisition Agreement contains various representations, warranties,
covenants and conditions which are customary for a transaction of this nature.
Acquisition Financing
In conjunction with the Acquisition, Just Energy has entered into an agreement
to sell to a syndicate of underwriters led by RBC Capital Markets, GMP
Securities L.P. and CIBC World Markets Inc., as joint bookrunners, $330 million
aggregate principal amount of Convertible Debentures. The net proceeds of the
offering will be used to fund the purchase price for the Acquisition and related
costs.
The Convertible Debentures will bear interest at a rate of 6.00% per annum
payable semi-annually in arrears on June 30 and December 31 and have an initial
maturity date (the "Initial Maturity Date") of the earlier of (i) 5:00 p.m.
(Toronto time) on July 31, 2010 if the Acquisition has not been completed at or
before that time; (ii) the time, if any, at which Just Energy delivers a notice
to the underwriters and debenture trustee that the Acquisition Agreement has
been terminated or that Just Energy will not be proceeding with the Acquisition;
and (iii) the time, if any, at which the Fund announces to the public that it
does not intend to proceed with the Acquisition (each time being the
"Termination Time"). If the closing of the Acquisition occurs prior to the
Termination Time, the maturity date will be automatically extended to June 30,
2017.
The Convertible Debentures will be convertible at the option of the holder into
Just Energy trust units (or, subsequent to a conversion of Just Energy to a
corporation, common shares of the successor corporation to Just Energy) at a
conversion price of $18.00 (the "Conversion Price") per unit/share at any time
after the Initial Maturity Date and prior to the date fixed by Just Energy for
redemption.
The Convertible Debentures will not be redeemable by Just Energy before June 30,
2013, except upon the satisfaction of certain conditions after a change of
control of Just Energy has occurred. On or after June 30, 2013 and prior to June
30, 2015, Just Energy has the option to redeem the Convertible Debentures in
whole or in part, from time to time, at a price equal to their principal amount
plus accrued interest, provided that the volume weighted average trading price
for the units/shares is not less than 125% of the Conversion Price. On or after
June 30, 2015, Just Energy may redeem the Convertible Debentures in whole or in
part, from time to time, at a price equal to their principal amount plus accrued
and unpaid interest.
The offering will be made in all provinces of Canada pursuant to a short form
prospectus and is expected to close on or about May 5, 2010, subject to
regulatory approval. Closing of the Acquisition is subject to the completion of
the offering.
The securities referred to herein offered have not been, and will not be,
registered under the United States Securities Act of 1933, as amended (the "U.S.
Securities Act") or any other U.S. state securities laws and may not be offered
or sold in the United States or to United States persons absent registration or
an applicable exemption from the registration requirement of the U.S. Securities
Act and applicable U.S. state securities laws. This press release shall not
constitute an offer to sell or the solicitation of an offer to buy or subscribe
for securities in the United States, nor shall there be any sale of the
securities in any jurisdiction in which such offer, solicitation or sale would
be unlawful.
Acquisition Rationale
The acquisition of Hudson is expected to significantly enhance Just Energy's
growth in the small to mid-size commercial energy marketing segment in North
America. Just Energy is currently one of the leading energy retailers in North
America and Just Energy management believes that purchasing Hudson will add
significant depth and focus to its growing commercial marketing business.
Total Customer Base in Residential Customer Equivalents (RCE's) as at
December 31, 2009
Just Energy Hudson
--------------------------------------------------
Commercial Residential Commercial Residential
--------------------------------------------------
(thousands)
Canada
Gas 249.1 509.9 - -
Electricity 349.7 427.3 - -
United States
Gas 41.9 351.1 64.1 42.0
Electricity 136.5 214.5 527.1 53.3
--------------------------------------------------
Total 777.2 1,502.8 591.2 95.3
Hudson actively markets in New York, New Jersey, Texas and Illinois. These are
jurisdictions in which Just Energy currently operates and is familiar with the
regulatory and competitive environment. The current size of the addressable
electricity portion of these markets is estimated by Just Energy management at
approximately U.S. $30 billion in annual revenue. The combined Hudson and Just
Energy customer load will amount to less than 4% of the market, and as such Just
Energy management believes that there will be significant growth opportunities
in these markets after the Acquisition.
Hudson generates its sales through its independent broker marketing channel.
Customers rely on their brokers as independent advisors and those customers who
purchase through brokers would not typically purchase energy contracts through
direct sales. As a result, the acquisition of Hudson will bring a new segment of
the U.S. commercial market not currently served by Just Energy. With its Sales
portal, Hudson also has technology that enables more efficient selling of
Hudson's products to commercial customers through the broker channel and through
direct sales. Just Energy management believes that this technology can be used
in all of the jurisdictions in North America where Just Energy currently
operates.
Accretion and Other Key Financial Metrics
While there will be some transition costs, Just Energy management expects that
the Acquisition will be immediately accretive to Distributable Cash. The table
below highlights the pro forma impact of the Acquisition on Just Energy's
financial results for the 12 months ended December 31, 2009.
(C$ 000's, unless otherwise indicated)
(Unaudited) 12 months ended December 31, 2009
------------------------------------------------
Pro Forma
Just Energy Hudson(1) Adjustments Combined(2) Accretion
----------------------------------------------------------
Distributable
Cash(3):
Distributable Cash
(Basic) $201,189 $66,140 (33,606) $233,723
Distributable Cash
Per Unit (Basic) $1.58 $1.83 16.2%
Number of Units
(Basic) 127,393,822 127,393,822
Distributable Cash
(Diluted) $201,189 $66,140 (13,806) $253,523(4)
Distributable Cash
Per Unit
(Diluted) $1.56 $1.72 10.3%
Number of Units
(Diluted) 128,756,348 18,333,333(5) 147,089,681
Summary Financial
Information:
Sales $2,174,208 $714,217 $2,888,425
Seasonally
Adjusted Gross
Margin(6) $410,153 $122,678 $532,831
Total Debt(7) $303,968 $330,000(9) $633,698
Adjusted EBITDA(8) $203,714 $75,517 $279,231
Total Debt / Adj.
EBITDA 1.5x 2.3x
----------------------------------------------------------------------------
(1) Hudson's financial information has been converted to C$ at an average
rate of US$1.00= C$1.1415 for income statement items and US$1.00=
C$1.051 for balance sheet items.
(2) Pro forma combined to give effect to the acquisition and the issuance of
the $330 million aggregate principal amount of Convertible Debentures as
if each occurred on January 1, 2009, as well as management's best
estimate of an incremental $13.8 million in cash taxes that would have
been payable on Hudson's earnings.
(3) "Distributable Cash" is a non-GAAP financial measure that does not have
standard meanings prescribed by GAAP. See "Additional Financial
Information - Pro Forma Distributable Cash" table for a reconciliation
of "Distributable Cash" to Cash inflow from operations. See also "Non-
GAAP Measures".
(4) Assumes conversion of the Convertible Debentures and the elimination of
$19.8 million in interest on the Convertible Debentures.
(5) Estimated shares issued in connection with the Debenture offering
assuming full conversion at a price of $18.00
(6) Seasonally adjusted gross margin is not a defined financial measure
under Canadian GAAP. Seasonally adjusted analysis applies solely to Just
Energy's natural gas markets and specifically to Ontario, Quebec,
Manitoba and Michigan. "Seasonally Adjusted Gross Margin" is derived by
adding to $16.9 million, an adjustment to reflect net cash receipts from
cash sales, to gross margin. See "Non-GAAP Measures".
(7) Includes JEEC convertible debentures at face value, long term debt,
current portion of long term debt and bank indebtedness.
(8) Adjusted EBITDA is earnings before interest, taxes, depreciation and
amortization and excludes non-cash change in fair value of financial
instruments. See the attached schedule for a reconciliation of Adjusted
EBITDA to Cash inflow from operations.
(9) Face value of the Convertible Debentures.
Liquidity and Credit Risk
Just Energy management believes that the current Just Energy $250 million credit
facility will be sufficient to meet the liquidity requirements of the combined
entity on completion of the Acquisition. Just Energy management believes that
the Hudson customer base has minimal customer concentration risk as the 10
largest electricity customers represent approximately 5% of Hudson's total
volume. The 10 largest natural gas customers represent approximately 4% of
Hudson's total volume. The New York and New Jersey markets, as purchase of
accounts receivable ("POR") markets, have minimal customer credit risk. Texas
and Illinois, being non-POR markets, have exposure to credit risk. Bad debt for
the calendar 2009 year for Hudson was 1.5% in non-POR markets. Approximately 30%
of Hudson's customer revenue being derived from non-POR markets.
Closing and Effective Date
Closing of the Acquisition is expected to occur on or about May 7, 2010.
Closing is subject to the satisfaction or waiver of a number of conditions that
are customary in acquisition transactions of this nature including: (i)
termination of the BP preferred supplier arrangement, (ii) securing any required
consents from lenders and regulatory bodies, (iii) satisfying requirements with
respect to the Hart Scott Rodino Antitrust Improvements Act of 1976, as amended,
(iv) certain key management having entered into employment agreements with Just
Energy, and (v) Just Energy completing the $330 million Convertible Debenture
offering.
Rebecca MacDonald, Executive Chair of Just Energy, noted: "This is an exciting
acquisition which will be key to the continued growth of Just Energy. Hudson is
a leader in sales to small and mid-size commercial customers who make up a
significant portion of our target market. Adding Hudson's key people and their
skill sets will vastly improve the commercial segment of our business. I am
looking forward to working with Deryl Brown and his Hudson team upon closing of
the Acquisition."
Ken Hartwick, CEO and President of Just Energy, added: "The attraction of Hudson
shows clearly through the numbers. Despite larger volume customers, their gross
margin percentage is similar to ours. While contract terms are shorter, their
annual customer attrition has been low at 5.5% in a challenging market
environment. Their average customer life is 4.4 years which is significantly
higher than our existing U.S. customer base. We believe this is a well run
company with strengths that compliment and enhance our business platform. Our
Just Green offerings will fit well with their product mix offering their brokers
a timely addition to the product suite. Their key supplier is BP Energy Company,
a valued member of our supplier pool. Overall, Hudson is an excellent fit with
Just Energy for what should be an accretive deal both now and in the future. In
addition, this builds on our proven track record of growth through acquisition
and integration as demonstrated by our Universal Energy transaction."
About The Fund
Just Energy's business involves the sale of natural gas and/or electricity to
residential and commercial customers under long-term fixed-price and
price-protected contracts. By fixing the price of natural gas or electricity
under its fixed-price or price-protected program contracts for a period of up to
five years, Just Energy's customers offset their exposure to changes in the
price of these essential commodities. Just Energy, which commenced business in
1997, derives its margin or gross profit from the difference between the fixed
price at which it is able to sell the commodities to its customers and the fixed
price at which it purchases the associated volumes from its suppliers.
The Fund also offers "green" products through its Just Green program. The
electricity Just Green product offers the customer the option of having all or a
portion of his or her electricity sourced from renewable green sources such as
wind, run of the river hydro or biomass. The gas Just Green product offers
carbon offset credits which will allow the customer to reduce or eliminate the
carbon footprint for their home or business. Management believes that these
products will not only add to profits, but also increase sales receptivity and
improve renewal rates.
In addition, through National Home Services, the Fund sells and rents high
efficiency and tankless waterheaters and, through Terra Grain Fuels Inc.,
produces and sells wheat-based ethanol.
About Hudson Energy
Hudson Energy Corp. ("Hudson") has an established and diverse customer base in
the New York (Electricity and Gas), New Jersey (Gas), Texas (Electricity), and
Illinois (Electricity) markets. Hudson sells fixed and index energy products
with an average term of 18 months, but as long as 36 months and continues to
primarily focus on the small to mid-size commercial energy market segment.
Hudson also offers a hybrid fixed / variable priced product and a month-to-month
product. Hudson is in the process of and has near-term plans to expand into many
other geographic regions.
Hudson employs 100 full-time and part-time employees and has approximately
680,000 RCEs (85% commercial, 15% residential) from 35,000 commercial and
115,000 residential customer accounts.
Additional Financial Information
Pro Forma Distributable Cash
(C$ 000's, unless otherwise
indicated)
------------------------------------------------
12 months ended December 31, 2009
------------------------------------------------
Pro Forma
Just Energy Hudson(1) Adjustments Combined(2)
------------------------------------------------
Sales $ 2,174,208 $ 714,217 $ 2,888,425
Cost of goods sold (1,781,047) (576,473) (2,357,520)
------------------------------------------------
Gross Margin 393,161 137,744 530,905
Adjustments required to
reflect net cash receipts
from gas sales 16,992 - 16,992
Add back of fair value and
amortization of derivative
instruments - (15,066) (15,066)
------------------------------------------------
Seasonally Adjusted Gross
Margin(3) 410,153 122,678 532,831
Less:
General and administrative (84,168) (47,162) (131,330)
Capital tax expense (359) - (359)
Bad debt expense (18,953) - (18,953)
Income tax provision (9,542) - (13,806)(4) (23,348)
Interest expense (11,449) (9,376) (19,800)(5) (40,625)
Other items 7,019 - 7,019
------------------------------------------------
Distributable cash before
marketing expenses 292,701 66,140 (33,606) 325,235
Marketing expenses to
maintain gross margin (56,480) - (56,480)
Distributable cash after
gross margin replacement 236,221 66,140 (33,606) 268,755
Marketing expenses to add
new gross margin (35,032) - (35,032)
------------------------------------------------
Distributable Cash (Basic) $ 201,189 $ 66,140 $ (33,606) $ 233,723
------------------------------------------------
Interest on Convertible
Debentures 19,800(5) 19,800
------------------------------------------------
Distributable Cash (Diluted) $ 201,189 $ 66,140 $ (13,806) $ 253,523
------------------------------------------------
Number of Units - basic 127,393,822 127,393,822
Number of Units - diluted 128,756,348 18,333,333(6) 147,089,681
----------------------------------------------------------------------------
Distributable cash per Unit
- basic $1.58 $1.83
Accretion - basic 16.2%
Distributable cash per Unit
- fully-diluted $1.56 $1.72
Accretion - fully-diluted 10.3%
----------------------------------------------------------------------------
Summary Financial Information
(C$ 000's, unless otherwise
indicated)
----------------------------------------------
12 months ended December 31, 2009
----------------------------------------------
Pro Forma
Just Energy Hudson(1) Adjustments Combined(2)
----------------------------------------------
EBITDA $ 236,845 $ 90,583 $ 327,428
Adjusted EBITDA(7) 203,714 75,157 279,231
Cash 32,893 17,099 49,992
Total Debt(8) 303,698 - 330,000(9) 633,698
Total Debt / Adjusted EBITDA 1.5x - 2.3x
Reconciliation EBITDA and Adjusted EBITDA
(C$ 000's, unless
otherwise indicated)
---------------------------------------------------
12 months ended December 31, 2009
---------------------------------------------------
Pro Forma
Just Energy Hudson(1) Adjustments Combined(2)
---------------------------------------------------
Net Income $ 142,086 $ 66,282 (38,712)(4)(10) $ 169,656
Less: Interest 11,449 14,192 25,160(10) 50,801
Tax 34,123 - 13,606(4) 47,729
Amortization 49,187 10,108 59,295
----------------------------------------------------------------------------
EBITDA 236,845 90,583 327,428
----------------------------------------------------------------------------
Adjustment for fair value
of financial instruments (33,131) (15,066) (48,197) (48,197)
Adjustment for tax on
fair value of derivative
instruments - - -
----------------------------------------------------------------------------
Adjusted EBITDA 203,714 75,517 - 279,231
----------------------------------------------------------------------------
Reconciliation of Distributable Cash
(C$ 000's, unless
otherwise indicated)
--------------------------------------------------
12 months ended December 31, 2009
--------------------------------------------------
Pro Forma
Just Energy Hudson(1) Adjustments Combined(2)
--------------------------------------------------
Cash Inflow from
Operations $ 160,720 $ 181,116 (33,606)(4)(5) $ 308,230
Add: Decrease in non-cash
working capital 37,916 (114,976) - (77,060)
Tax impact on
distributions to Class A
preference shareholders 2,553 - - 2,553
----------------------------------------------------------------------------
Distributable Cash 201,189 66,140 233,723
----------------------------------------------------------------------------
(1) Hudson's financial information has been converted to C$ at an average
rate of US$1.00= C$1.1415 for income statement items and US$1.00=
C$1.051 for balance sheet items
(2) Pro forma combined to give effect to the acquisition and the issuance
of the $330 million aggregate principal amount of Convertible
Debentures as if each occurred on January 1, 2009, as well as
management's estimate of an incremental $13.8 million in cash taxes
that would have been payable on Hudson's earnings for the 12 months
ended December 31, 2009
(3) Seasonally adjusted gross margin is not a defined financial measure
under Canadian GAAP. Seasonally adjusted analysis applies solely to
Just Energy's natural gas markets and specifically to Ontario, Quebec,
Manitoba and Michigan. "Seasonally Adjusted Gross Margin" is derived by
adding to $16.9 million, an adjustment to reflect net cash receipts
from cash sales, to gross margin. See "Non-GAAP Measures"
(4) Represents Just Energy management's estimate of cash taxes payable by
Hudson had it been taxable for the twelve months ended December 31,
2009
(5) Estimated interest expense on the Debentures after giving effect to the
Offering as of January 1, 2009
(6) Estimated shares issued in connection with the Debenture offering
assuming full conversion at a price of $18.00
(7) Adjusted EBITDA is earnings before interest, taxes, depreciation and
amortization and excludes non-cash change in fair value of financial
instruments. See the attached schedule for a reconciliation of Adjusted
EBITDA to Cash inflow from operations.
(8) Includes JEEC convertible debentures at face value, long term debt,
current portion of long term debt and bank indebtedness
(9) Face value of the Convertible Debentures
(10) After giving effect to the offering, reflects accretion of the carrying
value of the $330 million debentures to the face value of the
debentures and associated interest for the 12 months ended December 31,
2009.
Non GAAP Measures
Adjusted net income (loss) represents the net income (loss) excluding the impact
of mark-to-market gains (losses) arising from GAAP requirements for derivative
financial instruments on our future supply positions. Just Energy ensures that
customer margins are protected by entering into fixed-price supply contracts. In
accordance with GAAP, the customer margins are not marked-to-market but there is
a requirement to mark-to-market the future supply contracts. This creates
unrealized gains (losses) depending upon current supply pricing volatility.
Management believes that these short-term mark-to-market non-cash gains (losses)
do not impact the long-term financial performance of the Fund.
Management also believes the best basis for analyzing both the Fund's operating
results and the amount available for distribution is to focus on amounts
actually received ("seasonally adjusted"). Seasonally adjusted analysis applies
solely to the gas markets and specifically to Ontario, Quebec, Manitoba and
Michigan. Just Energy receives payment from the LDCs upon delivery of the
commodity not when the customer actually consumes the gas. Seasonally adjusted
analysis eliminates seasonal commodity consumption variances and recognizes
amount available for distribution based on cash received from the LDCs.
Other non-GAAP measures used in this press release include "Distributable cash"
and "Adjusted EBITDA. See the attached schedule for a reconciliation of
"Distributable cash" and "Adjusted EBITDA" to cash inflow from operations.
Non-GAAP financial measures do not have standard meanings prescribed by GAAP and
are therefore unlikely to be comparable to similar measures presented by other
issuers. Such non- GAAP financial measures should not be considered as an
alternative to, or more meaningful than, net income (loss), cash flow from
operating activities and other measures of financial performance as determined
in accordance with GAAP as an indicator of performance.
Forward-Looking Statements
The Fund's press releases may contain forward-looking statements including
statements pertaining to closing of the Convertible Debenture offering and the
Acquisition and the anticipated timing thereof, the anticipates benefits of the
Acquisition, customer revenues and margins, customer additions and renewals,
customer attrition, customer consumption levels, distributable cash and
treatment under governmental regulatory regimes. These statements are based on
current expectations that involve a number of risks and uncertainties which
could cause actual results to differ from those anticipated. These risks
include, but are not limited to, the failure to satisfy any of the conditions to
the completion of the Convertible Debenture offering or the Acquisition, the
risk that the businesses of Just Energy and Hudson will not be integrated
successfully and on a timely basis and the risk that any growth prospects from
the combination of the businesses will not be fully recognized or will take
longer to realise than expected; the levels of customer natural gas and
electricity consumption, rates of customer additions and renewals, rates of
customer attrition, fluctuations in natural gas and electricity prices, changes
in regulatory regimes and decisions by regulatory authorities, competition and
dependence on certain suppliers. Additional information on these and other
factors that could affect closing of the Convertible Debenture offering or the
Acquisition, or the Fund's operations, financial results or distribution levels
following completion of the Acquisition, will be or are included in the
preliminary prospectus of the Fund to be filed in connection with the
Convertible Debenture offering, the Fund's annual information form and other
reports on file with Canadian securities regulatory authorities which can be
accessed through the SEDAR website at www.sedar.com or through the Fund's
website at www.justenergy.com.
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