Cetus Capital Issues Letter to Hyster-Yale’s Board of Directors
03/16/2021 - 09:00 AM
Cetus Capital VI, L.P., (together with its affiliates, “Cetus” or “we”), a shareholder of Hyster-Yale Materials Handling, Inc. (NYSE: HY), today issued a letter to the Company’s Board of Directors. The full text of the letter is included below.
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Exhibit 2: Hyster-Yale Capital Allocation Priorities (Source: Hyster-Yale, Q3 2020 Investor Presentation)
March 16, 2021
The Board of Directors
Dear Hyster-Yale Board of Directors:
I am writing to you on behalf of Cetus Capital VI, L.P., (together with its affiliates, “Cetus” or “we”), which collectively beneficially holds more than 1.0% of the Class A common stock of Hyster-Yale Materials Handling, Inc. (“Hyster-Yale”) (NYSE: HY).
We urge the Company and its Board of Directors to evaluate strategic alternatives for Nuvera Fuel Cells, LLC (“Nuvera”) immediately, including a sale or divestiture, for the following reasons:
1. Nuvera is a crown-jewel asset that could be worth billions of dollars, based on the valuations of publicly traded fuel cell peers.
Publicly traded fuel cell companies with similar or inferior technology to Nuvera are trading at enterprise values of billions of dollars. Plug Power, Inc., Nuvera’s closest competitor, currently has a $23 billion valuation with only ~$300 million of billings on a latest twelve months basis. Virtually all public fuel cell companies trade at enterprise values of at least $1.7 billion despite having minimal revenue (Exhibit 1).
With the boom of SPACs and growing interest in fuel cell technology broadly, investors are yearning to properly finance a lucrative technology such as Nuvera.
Nuvera possesses technologies and capabilities that are arguably stronger than its publicly traded peers. In particular, Nuvera offers the following:
Unique open flow field technology that provides superior power density;
Proprietary uncoated metal plate design that yields superior shock and vibration resistance; and
Valuable control systems that mitigate stress on the fuel cell stack and deliver efficient long-term performance.
Based on Nuvera’s leading technologies and capabilities, we believe Nuvera would garner at least a similar or premium valuation to its peers as an independent company.
Exhibit 1: Select Fuel Cell Companies (as of 3/12/21):
Share
% 52 wk
Market
Total
Cash
LTM
Company
Price
High
Cap
Debt + Pref.
& Equiv.
TEV
Sales
PLUG POWER INC
$47.25
$75.49
$23,695.1
$731.8
$1,312.4
$23,114.5
$337.0
BALLARD POWER SYSTEMS INC
$26.36
$42.28
$7,831.1
$17.9
$763.4
$7,085.5
$103.9
CERES POWER HOLDINGS PLC
$16.29
$22.34
$2,805.2
$6.0
$133.7
$2,677.5
$26.3
ITM POWER PLC
$7.16
$10.00
$3,872.4
$8.2
$33.6
$3,847.1
$1.3
FUELCELL ENERGY INC
$18.16
$29.44
$5,855.0
$246.8
$149.9
$5,952.0
$70.9
POWERCELL SWEDEN AB
$33.94
$54.71
$1,760.4
-
$50.7
$1,709.7
$11.3
Source: Bloomberg, public filings.
Further, we believe that the current enterprise value of Hyster-Yale is ascribing very little value to Nuvera .
Hyster-Yale’s core lift truck and Bolzoni businesses have historically generated combined EBITDA between approximately $120 million to over $180 million annually since 2015. When compared to Hyster-Yale’s current total enterprise value of $1.8 billion , we believe the market is ascribing very little value to Nuvera, as we believe Nuvera is neglected, under-invested and mismanaged.
By not properly evaluating a spin-off of Nuvera, Hyster-Yale’s Board is foregoing the opportunity for significant immediate returns to shareholders.
2. Nuvera does not fit inside of Hyster-Yale.
Hyster-Yale’s core lift truck and attachment businesses are mature industry cycle companies, while Nuvera is a venture business. The initial acquisition strategy for Nuvera was to enable Hyster-Yale to fully deploy fuel cell motive power and on-site hydrogen generation and supply solutions to lift truck customers in North America. However, after six years of not achieving any meaningful commercial success, despite being “vertically integrated,” Hyster-Yale has now shifted its focus to the small and medium-sized engine market with applications primarily for buses and commercial vehicles in China. Further, Hyster-Yale has continued to divest assets related to on-site hydrogen generation and supply.
The strategy and valuation approaches for the lift truck and attachment businesses and Nuvera are drastically different. Hyster-Yale’s core market is the lift truck business, whereas Nuvera is a fuel cell technology company that must focus on non-lift truck applications for growth. While Hyster-Yale management is well-versed in commercializing lift truck technology, we do not believe this expertise is transferable to a completely different industry (from a manufacturing operations and business development perspective).
Hyster-Yale has its hands full with executing the strategic initiatives associated with its core truck lift and attachments businesses (e.g., providing the lowest cost of ownership, being the leader in delivery of industry and customer-focused solutions, being the leader in independent distribution, growing in emerging markets, etc.), which we believe have strong growth prospects, as evidenced by its bookings in Q4 2020, and has demonstrated an ability to consistently generate good earnings and cash flow. Accordingly, we believe Hyster-Yale should focus on driving the lift truck and attachments businesses forward while allowing Nuvera to thrive as an independent company.
3. Nuvera is being mismanaged under the Hyster-Yale umbrella.
Hyster-Yale management is too focused on Nuvera not losing money and further impacting its industrial value. Hyster-Yale has shown little regard to the top-line growth that Nuvera needs to achieve to scale. As a company with groundbreaking technology and a very large total addressable market, “break-even” cannot be the main priority for Nuvera.
Prior to joining Nuvera, neither its CEO nor CFO had any fuel cell or power background. Nuvera would greatly benefit from operating outside the Hyster-Yale umbrella led by a management team who has significant industry experience and technological expertise that could focus on commercialization efforts to properly scale the business.
For a business with such tremendous value and growth prospects, Nuvera should be a top priority for capital allocation. However, Nuvera is currently third in line for capital allocation from Hyster-Yale, demonstrating a clear lack of focus on this business (Exhibit 2). At this stage of development, Nuvera needs more growth capital to build the top-line and commercialize its technology instead of being starved by Hyster-Yale.
Exhibit 2: Hyster-Yale Capital Allocation Priorities
See Image
Source: Hyster-Yale, Q3 2020 Investor Presentation
4. Hyster-Yale could still enjoy the benefits of Nuvera’s technology.
We do not believe Hyster-Yale would be materially disadvantaged by spinning out or selling Nuvera. For example, Nuvera could preserve its collaboration with Hyster-Yale in port equipment through a joint venture, while allowing Nuvera to focus on building relationships with OEMs in relatively untapped segments such as passenger and commercial vehicles to accelerate top-line growth.
5. Nuvera deserves appropriate leadership and investor base.
We believe Nuvera will fare much better as a company with a distinct investor base and management team who know how to better manage its technology roadmap and drive market penetration. Hyster-Yale has not shown dedication to top-line growth or developing hydrogen infrastructure necessary for a large-scale rollout, and in fact has been divesting hydrogen infrastructure assets. Nuvera needs new management that (a) is experienced in scaling early stage companies, (b) can properly grow Nuvera, and (c) is able to unlock the value of the Nuvera’s technology. We believe a growth-oriented investor base and a new management team would be better suited to support future technological investments and provide a level of focus and industry acumen of which Hyster-Yale is currently incapable.
For these reasons, we urge management and the Board of Directors to evaluate strategic alternatives immediately.
Sincerely,
Cetus Capital VI, L.P.
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