December 2004

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MISSISSAUGA, ON - In a move that took the international hydrogen community by surprise, Hydrogenics Corp. and Stuart Energy Systems Corp. announced last month that Hydrogenics plans to take over Stuart.

For all practical purposes, it looks like a Happy Family kind of done deal: The announcement was made jointly, and both companies have already agreed that Hydrogenics will make a share exchange take-over bid for all of Stuart’s outstanding shares at an exchange ratio of 0.74 Hydrogenics shares for each Stuart Energy share.

Stuart’s board of directors is unanimously supporting the transaction, valued at about Can. $155 million (about U.S. $129 million), and it is recommending the same to its shareholders. The offer was to have been mailed to Stuart shareholders within 2-3 weeks after the announcement, after which it will be open for 35 days. Unless there are last-minute glitches, the merger is expected to be consummated by January or February, a Hydrogenics spokeswoman told H&FCL.

The new united company is expected to have a cash balance of U.S. $120 million at closing, and cost synergies - savings - are expected to be U.S. $8 million annually, a Hydrogenics investors’ report said.

The new company will continue to be led by Pierre Rivard as president and CEO. Stuart Energy will nominate three new directors to Hydrogenics’ 9-member board. One of them is likely to be Hugo Vandenborre, founder and CEO of Belgium’s Vandenborre Technologies, Stuart’s principal competitor which Stuart took over last year (H&FCL Jan. 03).

Stuart’s CEO Jon Slangerup is expected to be part of the new management team. And while nobody is saying so directly, there is likely to be some streamlining, i.e., staff reductions, in the new combined work force of close to 400, according to Hydrogenics - not unreasonable given the fact that both companies are located within a couple of kilometers of each other in this Toronto suburb. Stuart says the deal will produce “immediate synergies from the combined operations,” and “will accelerate the timetable to profitability.”

Both companies say the merger is a win-win story for both Hydrogenics, the new kid on the block - the company was founded in 1995 - and 50-year-old Stuart Energy which previously, as Electrolyser Corporation Ltd., was for many years the pre-eminent symbol of hydrogen as chemical commodity and hydrogen energy in Canada.

Stuart’s expertise in electrolysis and hydrogen generation gives Hydrogenics a third leg, adding to Hydrogenics’ capabilities in test stands and equipment and fuel cell power modules, said the Hydrogenics spokeswoman, “something we always wanted to move to.”

The new company with its three main product lines and focus on hydrogen infrastructure offers strengths “which nobody else in the sector will have,” adds a Stuart spokeswoman. “It’s the hydrogen economy under one brand umbrella. It also makes us a much larger company with more clout in the industry, better recognition by partners, customers, the supply chain - all those things.”

Almost nothing about the deal apparently leaked out before the official Nov. 10 announcement - “we kept it very quiet,” said the Hydrogenics spokeswoman - but it wasn’t totally unexpected: “We’ve been talking on and off about this for a couple of years,” said the Stuart spokeswoman. “It was out there, but not in any serious way. We always thought it was a good thing. I think they seriously approached us in the summer.”

Hydrogenics, meanwhile, isn’t letting up on its stream of new product announcements. At the San Antonio Fuel Cell Seminar, just prior to the merger news, the company announced two new aditions to its line up of fuel cell power modules, a 7 kW and a 65 kW version. The initial one, a 10 kW version was announced at the previous seminar in Miami.

On the day of the merger announcement, the company announced an order for 25 of the 10 kW modules for an unnamed major supplier of uninterrupted power equipment.

Five days later, the company said it ha sold a lightweight 5 kW PEM stack to NASA’s Glenn Research Center for use in an experimental closed-cycle hydrogen-oxygen regenerative fuel cell. And four days after that, Nov. 19, the company announced it had been contracted by the transport ministry of the German state of Northrhine-Westphalia to develop a 17-foot hybrid “midi-bus” for an as yet unnamed European bus manufacturer, plus testing and demonstrations. The ministry will pick up half of cost up to Euro 566,000 (about U.S. $$735,000), according to the release. Contacts: Hydrogenics: Melody Gaukel, 416/544-4906, melody.gaukel@ketchum.com; Stuart, Wanda Cutler, 905/282-7769.