Is Ballard Power Selling Off Its Future?
Ballard Power (Nasdaq: BLDP) is in admittedly tough shape. The company continues to burn through cash, and with the stock near all-time lows, it's not a great time to try to raise equity financing. Consider that a commercially viable transportation product likely won't hit the market before 2010, and you've got a tenuous situation.
What I'm wondering, though, is whether Ballard management is selling away the future bit by bit. I already took the company to task for modifying its alliance with Ford (NYSE: F) and DaimlerChrysler (NYSE: DCX) in such a way that Ballard was keeping only about 60% of the content of the proposed fuel cell car of the future. Well, that deal was modified again (taking electric drives out of the mix) and still hasn't closed.
Today, the company announced an agreement with EBARA concerning cogeneration fuel stacks. Unlike vehicle fuel cells, cogeneration systems are designed to be kept fixed in place and produce electricity and hot water for a residence or office. By way of comparison, this is roughly the same sort of business that FuelCell Energy (Nasdaq: FCEL) is in, though FuelCell focuses on larger systems and uses much different fuel cell technology.
While the headline of the agreement said that it's a $30 million transaction, that money won't all be coming at once. Instead, Ballard will get $18 million over four years for ongoing development efforts (provided it achieves milestones) and two equity financings over the next two years totaling $11.7 million.
The price of this? EBARA Ballard (a company owned 51% by EBARA and 49% by Ballard) will gain exclusive rights (via license) to assemble, develop, manufacture, and sell fuel-cell cogeneration systems in Japan. While Ballard is keeping the rights to markets outside of Japan, that's not worth so much just yet because only the Japanese have really seemed interested in small cogeneration systems designed for the home or small offices.
As of the last quarterly report, Ballard had about $260 million of cash and a burn rate of roughly $8 million per month. Though that burn rate did decline a bit, Ballard clearly lacks the cash to develop its vehicle system to fruition without some additional infusions or drastic cutbacks in spending (and the latter doesn't seem too likely).
The question thus becomes: Even if Ballard makes it from a technological perspective, what will be left for shareholders? The company has already given up pieces of the vehicle and cogeneration business, and who knows what sorts of deals management will strike in the future to keep the company solvent.
And that all assumes that competitors like Toyota (NYSE: TM), General Electric (NYSE: GE), or United Technologies (NYSE: UTX) don't leapfrog ahead and end up dominating the vehicle or cogeneration markets themselves.
Far be it from me to discourage people from taking risks, but when the insiders own all of 0.09% (as of March 1, 2005) of the stock, I look at that as a gigantic caution sign. Maybe Ballard Power will pull it out in the end, but those in management don't seem to want to own a big chunk for themselves and they seem pretty willing to sell away pieces of their shareholders' future. Not good, in my view.
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