Tuesday, September 22, 2009

A delicate unwind at MMC Energy (MMCE)

AlphaNinja - Here's a quick reason to stay away from a stock - the company's website touts "Where the Energy Industry....Meets Walls Street."

...Moving on. MMC Energy's (MMCE) purpose was to acquire and operate "peak-energy" power assets in Southern California, a market that is often starved for electricity. The idea was for the company to purchase assets on the cheap from distressed companies - which they did a fine job of, purchasing one plant for a tenth of what is was built for:

"We acquired and then re-commissioned the facilities for a total cost price of approximately $5.7 million, representing a fraction of the original $57 million cost to construct the facilities in 2001.
We tested and repaired all of the key equipment, renewed all of the required operating permits, and fully re-commissioned the facilities in June 2006, in time for the critical summer market."

MMC's plants power up in a hurry (10minutes), and would only be operated at times of extreme energy needs, thus garnering premium pricing. However, California's energy market is a difficult thing to navigate, and the company also didn't see the demand they needed. The firm's state of financial distress also worried the California Energy Commission enough that they denied the company a permit to operate a facility.

"Due to the recent stresses in the financial markets, coupled with depressed electricity prices, it has become increasingly difficult for the Company to continue to execute its acquisition growth strategy. Furthermore, the California Energy Commission (the “CEC”) issued its Final Decision in June 2009 denying the Company’s Chula Vista Energy Upgrade Project the required permit to proceed, in what the Company believes to be an unprecedented reversal of the CEC staff’s Final Staff Assessment in full support of the Company’s application. The Company has chosen not to appeal the CEC Final Decision based on its assessment that there is an extremely low probability of success in an appeal."

MMC Energy (MMCE) is winding things down as it has admitted its strategy failed. On a positive note, they appear to be doing their very best to provide common stockholders with some value. The reason people continue to own the stock is because they'll receive a portion of the liquidation of MMC's remaining assets - two GE turbines. MMC prepaid for these, so they previously listed these on the balance sheet as "long term deposits" - certainly something that would give investors pause as they peruse the balance sheet for value.

Fortunately, as of the Jun09 10q, the company took delivery and reclassified the turbines as PP&E (Property, Plant & Equipment), a step closer to monetizing the assets for shareholders. Based on today's $1.41 stock price, the company is valued at about $20million -->> accounting for the anticipated sale of those assets, minus some "winding-down" costs as the company retreats from the public markets. An unfortunate situation, but I highlight it as a fan of management that is trying to save a little money for shareholders.

1 comment:

  1. MIAMI, Sept. 21 /PRNewswire/ -- Karl and Ashley Miller today released a summary of the formal complaint to the SEC to require MMC Energy, Inc. Board of Directors (Nasdaq: MMCE - News) to disclose involvement in material litigation that will reduce the Company's assets, which seeks an order from the SEC forcing the MMC Board of Directors to disclose to its shareholders the company's involvement in multiple and complex material litigation that will reduce the assets of the company available to distribute to shareholders.

    The Summary of the Complaint to the SEC is as follows:

    Attention Securities and Exchange Commission

    Reference: MMC Energy, Inc Undisclosed Material and Complex Litigation

    We are writing as substantial shareholders in MMC Energy, Inc. (MMC), to voice our concern over your failure to require MMC to disclose the company's involvement in substantial material litigation of which we are aware. The cost of this litigation will undoubtedly reduce the amount of cash available to be distributed to shareholders on a per share basis under MMC's liquidation and dissolution plan and MMC should be required to disclose the existence of this litigation and its past and potential cost.

    On Tuesday, September 15, 2009, MMC issued a press release announcing its intention to vigorously prosecute a case the company filed against me in the Federal District Court for the Southern District of New York, in May of 2008, which alleges breach of a Separation Agreement in connection with a proxy contest in March, April and May of 2008.

    In fact, Mr. Miller did not breach any contract but assuming for the sake of argument only that he did, MMC will not likely be entitled to any damages and under even the most optimistic scenario would not be entitled to damages that exceed the costs of conducting this litigation which will almost certainly be $500,000 or more that will be borne by shareholders.

    As the MMC Board of Directors well knew, Mr. Miller had signed a founder's contract with the company in May of 2006, which required that he be paid compensation under a specified formula that included paying all his benefits until May of 2011. Under the terms of that contract he was entitled to more compensation than he agreed to take in the Separation Agreement and he agreed to take less as a major shareholder to avoid litigation that would deplete company assets.

    As a result MMC paid less than it was required to pay and its damages for any breach of contract would be less than zero as the Separation Agreement allowed MMC to keep monies which it was required to pay to Mr. Miller. Certainly MMC's shareholders are entitled to a full explanation as to why they are now being required to pay for litigation that even if successful will not result in any recovery for the shareholders.

    We also find troubling MMC's announcement in the same press release, that the company "will defend" President and CEO Michael J. Hamilton and Directors George Rountree, III and Richard H. Bryan by providing legal counsel at company expense, in a lawsuit we have filed in Florida against them. In that lawsuit those individuals are alleged to have acted in their own pecuniary self-interest and not for the benefit of the company or its stockholders.

    Again, we find it difficult to understand why the SEC has not required MMC to provide full disclosure for its payments for Hamilton, Rountree and Bryan, particularly since the company had previously used shareholder money to purchase an insurance policy for its directors and officers in the event of such legal action against them. In fact, MMC failed to disclose to shareholders the existence of either of these lawsuits.

    For all of these reasons, we respectfully request that the SEC require MMC to disclose its involvements in the litigation in New York and Florida and to disclose just how much the company has paid and has committed to pay to Kasowitz, Benson, Torres and Friedman, LLP, for litigation that is not in the best interests of the company or its shareholders.