Summary
- An August 8, 2021, ADES news-release stated: ”Advanced Emissions Solutions, Inc., a leader in emissions-control-solutions, has entered into a definitive merger-agreement with Arq Limited… to combine their businesses”.
- “ADES shareholders may-elect to receive up-to $10.0 million of cash-proceeds in the merger (at a price-of $0.52 per-share) and will retain at-least 47.4% of the outstanding-shares of the combined company."
- ADES provides emissions-control solutions for coal-fired power generation, industrial and municipal water purification, while Arq developed and owns a novel-manufacturing process for producing patent-protected carbon-products from remediating coal-waste sites.
- “The merger creates a North American based, integrated environmental technology company with access to diverse growth markets [in] a competitively advantaged position supported by patent-protected intellectual property (“IP”) and products. Access to Arq’s unique carbon feedstock will allow ADES to produce higher value activated carbon (AC)”.
Foreword
The August 19, 2022 news release is available here . Excerpts from that release state:
Added to Advanced Emissions Solutions ( ADES ) emissions control solutions, Arq's technology and unique feedstock products provide significant growth opportunities for the combined companies in high-growth granular activated carbon (GAC) markets as well as large, adjacent markets such as additives applied to Carbon Black, Asphalt, and Marine Fuel.
Utilizing Arq Limited's waste-derived feedstock results in lower manufacturing emissions and promotes the reclamation of properties for future use.
Stronger Together?
The combined company's vertical supply chain will support efficient production and distribution of an expanded variety of both granular activated carbon and powdered activated carbon products.
The combined ADES and Arq firm will enter into broader, higher performance and higher value AC markets. It will leverage ADES' existing organizational infrastructure, up-scale manufacturing capabilities, well-established distribution network, world-class research, technical support, market-leading sales channels and customer base, while integrating Arq's unique patent-protected and environmentally-sustainable feedstock.
The combined company projects annual revenue of $196 million and annual EBITDA of $61 million by 2026, with potential to expand growth through additional financing. ADES 2021 annual revenue was $110.70 million and annual EBITDA was $40.31 million.
Greg Market , Chief Executive Officer, President and Treasurer of ADES, said "We are thrilled to join forces with Arq and pursue the exciting opportunity the merger presents to grow our businesses and to expand and enhance our collective operations and product portfolio."
Founder and Chief Executive Officer of Arq Limited, Julian McIntyre responded, "Today's announcement combines the resources of two leading environmental technology companies with proven, patented technology solutions that reduce the environmental footprint while creating a more sustainable future for our customer."
Transaction Terms
ADES will issue 19,279,235 shares of its common stock to existing Arq equity holders, in exchange for all of their equity interests.
ADES shareholders will have the option to receive 1.11 shares of the combined company and a one-time cash payment of $0.52 per share or 1.22 shares of stock in the combined company.
A binding commitment for a $10.0 million term debt facility from a lending party was obtained. The lending party will also obtain penny warrants to purchase 1% of the pro forma equity of the combined company.
Upon completion of the merger, the Company will complete a private investment in public equity ("PIPE") from current Arq shareholders for an additional capital investment of $20.0 million.
Legacy ADES shareholders, after merger, will own 49.5%, assuming a 100% stock election and that the PIPE shares are purchased at the Fixed PIPE Price. Legacy Arq equity holders and PIPE investors will own approximately 49.5% with the remaining 1% owned by the lending party.
ADES will continue to operate as a public company, with its shares listed on the Nasdaq Global Market under its existing ticker symbol ("ADES").
The merger is subject to customary conditions precedent, including the filing of all required documents with the United States Securities and Exchange Commission, shareholder approval, and court approval of the Scheme arrangement of Arq shareholders.
ADES intends to increase the number of its authorized shares of common stock from 100 million to 125 million, subject to shareholder approval.
The merger is subject to approval by holders of shares of ADES common stock during a Special Meeting of Shareholders, date and time to be determined. Additional information regarding the terms of the merger and required shareholder approval will be provided via a preliminary proxy statement, to be filed with the U.S. Securities and Exchange Commission (the "SEC") in the coming weeks. If approved by ADES shareholders, the merger is expected to close during the fourth quarter of 2022 or the first quarter of 2023.
Analysis of The Transaction
Source: Advanced Emissions Solutions Inc
So, you might ask, "will Arq Limited be the catalyst that propels Advanced Emissions Systems stock price up to double digits by 2026?"
The author has identified three factors that could precipitate such positive price propulsion.
First, proliferation of patented products and processes: "The announcement of our proposed merger with Arq Limited represents the culmination of our strategic review process and months of diligent work to identify, evaluate and pursue opportunities to increase value for our shareholders," said Greg Marken, Chief Executive Officer, President and Treasurer of ADES.
Presuming that strategic "diligent work to identify, evaluate and pursue opportunities to increase value for shareholders" is an on-going executive function at ADES, more mergers, acquisitions, and synergies might turn up.
Second is the role of teamwork to improve existing product offerings. Julian McIntyre, Founder and Chief Executive Officer of Arq has observed,
The combined teams of ADES and Arq accelerates the Company's presence in the structurally under-served North American activated carbon market and solidifies the foundation to compete effectively in growing adjacent markets such as Carbon Black, Asphalt, Marine Fuel, and other specialty applications on a global scale.
Third is the capacity to research and develop of specific intellectual property for environmental recovery and enhancement. As McIntyre observed in the merger announcement,
ADES' preeminent manufacturing assets, outstanding commercial sales team and world class R&D capabilities are the perfect complements to [Arq's ability to] produce specialty AC products on a larger scale for growing markets and applications. We are very excited to combine our respective businesses and look forward to our future success.
Actionable Conclusion (1): Forward Projections Estimate ADES may barely be profitable come 2026
The problem, says the author is that "Coal's a defining yet, necessary industry." Coal technology is old school, and the EPA has teeth to force compliance with clean-air standards. This merger may mirror Shakespeare's drowning swimmers who, in order save themselves, do "choke their art."
Water, on the other hand is becoming more scarce, and precious. Unfortunately, ADES company product and service offerings in the water market are secondary to the coal industry.
Actionable Conclusion (2): ADES suspended dividends in 2020
ADES initiated quarterly dividends to stockholders in June, 2018 but discontinued them come February, 2020. Until the company is robust enough the reinstate its dividend, it would serve as a warning to investors to avoid new purchases of this stock.
Suggested Actions (3): Buy ADES only after their stockholder dividend is reinstated
Existing stockholders might consider doubling their shares if the price drops below its all time low of $1.24. The author believes the firm is dedicated and committed to the emissions and purification business for the long-term.
Afterword
This article features the pending merger of Advanced Emissions Solutions, Inc. founded in 1996 (whose products are used in removal of heavy metal pollutants; treatment of drinking and waste waters; industrial acid gas and odor removal; automotive gasoline emission control; soil and groundwater remediation; food and beverage process and product purifications) with Arq Limited, a privately owned, environmental technology company founded in 2015.
The combined entities are not likely to pay dividends within my ideal range where the annual dividend from $1K invested exceeds the single share price. Since this drama will gradually unfold, look for future reports, perhaps quarterly, to update the ADES merger story into 2026.
The stock listed above was suggested only as a possible reference point for your purchase or sale research process. This is not a recommendation.
Graphs and charts were compiled by Rydlun & Co., LLC from data derived from SeekingAlpha.com, YCharts.com; finance.yahoo.com; dividenddogcatcher.com.
For further details see:
Advanced Emissions Solutions To Merge With Arq Limited: Here's What You Need To Know