CMR Fuel Cells plans to return money, delist from AIM

Turmoil in the public markets has prompted a United Kingdom-based fuel cell developer to take steps to become a private company—a strategy that could become more common as early stage companies face increasing pressure from shareholders.

Cambridge-based CMR Fuel Cells (LON: CMF) is developing fuel cell stacks and systems for consumer electronics and signage. The company has limited revenue and expects to begin supplying its products to Asian original design manufacturers and other customers before the end of 2009, CEO John Halfpenny told the Cleantech Group.

In late December, CMR notified shareholders that it wants to return £3.8 million and de-list from the Alternative Investment Market (AIM), a sub-market of the London Stock Exchange for small-cap growth companies. If the plan receives shareholder and court approval, it could go into effect in March.

The removal from the AIM would "allow the company to grow without the pressure a quoted company may face to deliver short-term performance over long-term positioning and growth," according to a statement from the board of directors.

The problem in 2008 was that the stock traded at a significant discount to company's net assets per share, the board said. Some of the largest shareholders have asked for CMR to return its available cash to shareholders.

The company's stock is trading at £0.161 today—down 62.6 percent from January 2008, and even going as low as £0.092 in the days before CMR announced the plan to go private. The company's valuation is now £3.45 million.

Halfpenny said pre-revenue and early-stage companies such as CMR are being squeezed, despite any progress being made in getting products to market.

"The problems are not just specific to CMR they're specific to a lot of companies like CMR that have been listed on public markets the past few years," he said.

"There's a fundamental disconnection from the intrinsic value to the quoted value that is not going away. It has major and unintended consequences to your business, and I think a lot of businesses will look and examine what downsides there are to being a private company."

For CMR, the downside would be less liquidity. But becoming a private company could offer CMR new investors and more autonomy, Halfpenny said.

CMR has proposed it pay shareholders £0.20 per share for voluntarily tendering shares. Those keeping their shares would receive a special dividend of £0.17 per share. The company plans to release more information about its plan before the end of the month, Halfpenny said.

In order to raise the funds, CMR must streamline its focus to its hybrid fuel cell, which already has a customer base, Halfpenny said. Meanwhile, the company plans to eliminate development of products for subsectors of the category. Layoffs are possible but not definite for some of the company's 35 employees, Halfpenny said.

"This doesn’t change things radically," Halfpenny said. "What we’ve done is decided that as we go forward we must focus on the core commercial activities."

CMR was first listed on the AIM in December 2005.

Its power supply products are sold or licensed to be used in customers' products. The applications are typically specific to customers and can include a fuel cell system's stack or operating software. The systems are sometimes co-developed by CMR and the customer, Halfpenny said.

In November, CMR announced an exclusive joint development agreement with an Asian original design manufacturer, which CMR declined to name. Under the agreement, the partners plan to design and develop a stand-alone hybrid power system using a battery and 25-watt direct methanol fuel cell charger intended for consumer use.

CMR will likely need new investors to complete the development of that power system, the board of directors said.