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EXCLUSIVE Glass Lewis backs proposed probe into terminated Hanwha-REC Silicon deal
REC Silicon's plant in Moses Lake, Wash. / Courtesy of REC Silicon
By Park Jae-hyuk
Minority shareholders nominate independent directors to thwart tender offer
Glass Lewis, one of the world's most influential proxy advisers, has sided with minority shareholders of REC Silicon, who have locked horns with the Norwegian silicon materials maker's largest shareholder, Hanwha Group.
In a report published Tuesday, the proxy adviser recommended that REC Silicon investors vote for a shareholder proposal to initiate an investigation into the termination of its supply agreement with Hanwha Q Cells in January.
The termination followed the abrupt shutdown of REC Silicon's Moses Lake plant in the United States late last year, which led the company's stock price to plunge 50 percent on the first trading day of this year — from 3.59 Norwegian krone ($0.36) to 1.79 krone.
"We believe the proposed investigation could strengthen the alignment of shareholder interests with those of the company's management through establishing evident compliance with the applicable laws and regulations discussed by the board," Glass Lewis said.
According to REC Silicon's regulatory filing posted ahead of its annual general meeting of shareholders scheduled for June 25, four undisclosed shareholders requested a probe into the conditions under which Hanwha was allowed to terminate the supply agreement, as well as the Korean firm's influence over the quality test of products from the Moses Lake plant, which provided the basis for the factory's closure.
In response, REC Silicon said it is confident that all events and actions were conducted in the best interests of all shareholders and the company, and in accordance with applicable laws and regulations.
"In this case, we note that Hanwha Solutions and Hanwha Corp. together hold approximately 33.3 percent of the company's issued share capital and voting rights and have placed a voluntary offer for all shares in the company," Glass Lewis added.
Hanwha Group's headquarters in Seoul / Courtesy of Hanwha Group
Hanwha currently aims to delist REC Silicon from the Oslo Stock Exchange through a two-month voluntary cash offer, priced at 2.2 krone per share and expiring June 24.
The plan has also drawn severe backlash from minority shareholders, who denounce the proposal as "a scandalously low offer." Since Hanwha announced the tender offer on April 24, REC Silicon's stock price has remained above 2 krone, though it has never surpassed 2.2 krone.
Water Street Capital, a U.S. private equity firm that claims to own 8.26 percent of REC Silicon's outstanding common stock, on Wednesday recommended five director candidates independent of Hanwha's influence. This followed its announcement last month that it opposes the cash offer.
"The incumbent REC Silicon board, which is comprised of several Hanwha executives, has proven, in our view, that it is not representing the best interests of the company and its shareholders," Water Street Capital founder Gilchrist Berg said.
"The recent share purchase proposal by Hanwha, if executed, significantly undervalues the intellectual property and assets of a company deeply respected across the silane-based materials industry globally and invalidates the efforts of hundreds of REC Silicon employees."
REC Silicon, however, denied the criticism, citing a statement issued Tuesday by Pareto Securities. The Norwegian investment bank claimed the transaction valuation reflects the current underlying value of REC Silicon and therefore represents a fair valuation of the company.
As REC Silicon's management had not disclosed its nomination of director candidates as of Thursday, Glass Lewis recommended that shareholders "abstain" from voting on this issue.
"The late disclosure of the proposal creates a time constraint for international shareholders who wish to participate in the voting process," the proxy adviser said.