Advanced Emissions Solutions, Inc. (NASDAQ: ADES) (the "Company" or
"ADES"), a leader in emissions control solutions for coal-fired
power generation, industrial and municipal water purification
markets, today announced that it has entered into a definitive
merger agreement with Arq Limited (“Arq”), pursuant to which Arq
and ADES will combine their respective businesses. ADES
shareholders may elect to receive up to an aggregate of $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 and could increase up to 49.5% based upon 100%
equity elections by ADES Investors. Concurrent with the merger,
there will be a committed equity placement of $20.0 million from
current Arq investors and members of Arq management.
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 and 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”) at the company’s
Red River plant.
Merger Rationale and Transaction
Highlights
- Adjacent
market growth opportunities: Arq’s technology and unique
feedstock provide significant growth opportunities into high-growth
granular activated carbon (“GAC”) markets as well as large,
adjacent markets including, but not limited to, additives to be
utilized within the Carbon Black, Asphalt and Marine Fuel markets.
The combined company will seek to leverage Arq’s existing strategic
partnerships with Peabody, Vitol, Hafnia and
Mitsubishi.
- Sustainable
competitive advantage: The merger provides secured access
to unique, waste-derived feedstock, which can be used to produce
higher performance and environmentally beneficial AC products that,
when combined with a vertically integrated supply chain, provides a
distinct competitive advantage in the North American AC market. In
addition, the utilization of waste-derived feedstock results in
lower manufacturing emissions and promotes the reclamation of
property for future use. Further, with Arq’s feedstock, the
combined company’s vertically integrated supply chain will enable
highly efficient production and distribution of an expanded
portfolio of both GAC and powdered activated carbon (“PAC”)
products.
-
Profitability enhancement: The combination of ADES
and Arq provides entry into broader, higher performance and higher
value AC markets by leveraging ADES’ existing organizational
infrastructure, large scale manufacturing capabilities, 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 merger also provides for the optimization of the Red
River plant to produce additional GAC made from Arq’s feedstock,
thereby allowing entrance into growing and diverse markets, as well
as improving the plant’s economics.
- Attractive
financial profile: Combined company projected to generate
annual revenue of $196 million and annual EBITDA of $61 million by
2026, with potential to expand growth through additional financed
capital raises.
“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. “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. Arq has developed and patented new and innovative
technologies with the potential to revolutionize the performance of
carbon-based materials, which also provide a unique solution to
reduce the need for the extraction of virgin hydrocarbons. We are
excited to explore this new frontier with Arq’s leadership, which
will allow for a transition to better position us to pursue higher
margin markets. Arq has an exceptional leadership team, that brings
passion and creativity into the organization. I look forward to
working with Julian McIntyre and the Arq team as we collaboratively
forge the future for ADES and our shareholders.”
Julian McIntyre, Founder and Chief Executive
Officer of Arq, added, “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
customers. 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. Arq’s feedstock, produced from our Corbin, Kentucky plant,
will facilitate ADES’s expansion and penetration of the North
American GAC markets, which typically command higher prices and
improved margins over traditional PAC markets. ADES’ preeminent
manufacturing assets, outstanding commercial sales team and world
class R&D capabilities are the perfect complements 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.”
About Arq Limited
Arq is a privately owned, environmental
technology company founded in 2015 that has developed a novel
process for producing specialty carbon products from coal mining
waste. Arq has the technology and large-scale manufacturing
facilities to produce a micro-fine hydrocarbon powder, Arq powder™,
that can be used as a feedstock to produce activated carbon. Arq
powder™ can also be used as a blending additive for both the Carbon
Black and Asphalt markets. When blended with residual fuel oil for
marine transportation or utility fuels for energy generation, Arq
powder™ provides both a lower cost and an improved environmental
footprint. Arq’s products are patent protected with a family of
over 70 patents and applications.
Transaction Terms
- Pursuant to the
transaction agreement, 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.
- Pursuant to the
transaction agreement, 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.
- At the time of the
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 based at a
price of either (i) $4.67 per share (the “Fixed PIPE Price”) or
(ii) if the 30 day volume weighted average price of the Company’s
common stock for the 30 days ending on the third business day prior
to the date of the ADES shareholders’ meeting to approve the
transaction (the “ADES VWAP”) is greater than approximately $5.83
per share or less than approximately $3.51 per share, at a price
equal to the ADES VWAP.
- Immediately after
completion of the merger and giving effect to the PIPE (assuming
the PIPE shares are purchased at the Fixed PIPE Price) and dilutive
impacts of the warrants, legacy ADES shareholders 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 completion of
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.
As part of the completion of the merger, ADES
intends to increase the number of its authorized shares of common
stock from 100 million to 125 million, subject to shareholder
approval at the Special Meeting of Shareholders.
The completion of 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.
Conference Call and Webcast
Information
The Company has scheduled a conference call to
begin at 9:00 a.m. Eastern Time on Monday, August 22, 2022, to
discuss the terms of the merger. The conference call webcast
information will be available via the Investor Resources section of
ADES's website at www.advancedemissionssolutions.com.
Interested parties may also participate in the call by registering
at https://event.on24.com/wcc/r/3915366/2DAD3E9B4F4C125A111BFE0772E115FB.
A supplemental investor presentation will be available on the
Company's Investor Resources section of the website prior to the
start of the conference call.
As part of the conference call, ADES will
conduct a question and answer session. Investors are invited to
email their questions in advance to ADES@alpha-ir.com.
About Advanced Emissions Solutions,
Inc.Advanced Emissions Solutions, Inc. serves as the
holding entity for a family of companies that provide emissions
solutions to customers in the power generation and other
industries.
ADA brings together ADA Carbon Solutions, LLC, a
leading provider of powder activated carbon ("PAC") and ADA-ES,
Inc., the providers of ADA® M-Prove™ Technology. We provide
products and services to control mercury and other contaminants at
coal-fired power generators and other industrial companies. Our
broad suite of complementary products control contaminants and help
our customers meet their compliance objectives consistently and
reliably.
CarbPure Technologies LLC, (“CarbPure”), formed in
2015 provides high-quality PAC and granular
activated carbon ideally suited for treatment of potable water and
wastewater. Our affiliate company, ADA Carbon Solutions, LLC
manufactures the products for CarbPure.
Forward-Looking Statements
This press release contains forward-looking
statements within the meaning of Section 21E of the Securities
Exchange Act of 1934, which provides a “safe harbor” for such
statements in certain circumstances. When used in this press
release, the words “can,” “will,” “intends,” “expects,” “believes,”
similar expressions and any other statements that are not
historical facts are intended to identify those assertions as
forward-looking statements. All statements that address activities,
events or developments that the Company intends, expects or
believes may occur in the future are forward-looking statements.
These forward-looking statements may relate to such matters as
business strategy, goals and expectations concerning the merger
(including the anticipated timing of consummation of the merger,
future operations, future performance or results). The
forward-looking statements may further include projection on future
after-tax, net RC cash flows, expectations about future demand for
our APT products, pressure on APT margins and acceptance of price
increases as well as results from the Company’s review of strategic
alternatives. These forward-looking statements involve risks and
uncertainties. Actual events or results could differ materially
from those discussed in the forward-looking statements as a result
of various factors including, but not limited to: uncertainties as
to the timing of the consummation of the merger; the risk that the
merger may not be completed in a timely manner or at all; the
possibility that any or all of the various conditions to the
consummation of the merger may not be satisfied or waived; the
occurrence of any event, change or other circumstance that could
give rise to the termination of the transaction agreement; the
effect of the announcement of the transactions contemplated by the
transaction agreement on the Company’s ability to hire key
personnel, its ability to maintain relationships with customers,
suppliers and others with whom it does business, or its results of
operations and business generally; risks related to diverting
management’s attention from the Company’s ongoing business
operations; the ability to meet Nasdaq’s listing standards
following the consummation of the merger; costs related to the
proposed merger; opportunities for additional sales of our lignite
activated carbon products and end-market diversification; the
outcome of the review of strategic alternatives; the Company’s
ability to meet customer supply requirements; the rate of
coal-fired power generation in the United States; timing of new and
pending regulations and any legal challenges to or extensions of
compliance dates of them, the U.S. government’s failure to
promulgate regulations that benefit our business; changes in laws
and regulations; Internal Revenue Service interpretations or
guidance, accounting rules, any pending court decisions, prices,
economic conditions and market demand; impact of competition;
availability, cost of and demand for alternative energy sources and
other technologies; technical, start up and operational
difficulties; competition within the industries in which the
Company operates; loss of key personnel; ongoing effects of the
COVID-19 pandemic and associated economic downturn on operations
and prospects; as well as other factors relating to our business,
as described in the Company’s filings with the SEC, with particular
emphasis on the risk factor disclosures contained in those filings.
You are cautioned not to place undue reliance on the
forward-looking statements and to consult filings ADES has made and
will make with the SEC for additional discussion concerning risks
and uncertainties that may apply to the business and the ownership
of ADES securities. The forward-looking statements speak only as to
the date of this press release, and the Company does not undertake
any obligation to update its forward-looking statements to reflect
events or circumstances that may arise after the date of this press
release.
This press release does not contain all the
information that should be considered concerning the proposed
transaction to be voted upon at the special meeting of shareholders
and is not intended to provide the basis for any investment
decision or any other decision in respect of the transaction.
Shareholders are advised to read any proxy statement prepared in
connection with the transaction.
Non-GAAP Financial Measures
This press release presents certain supplemental
financial measures, including EBITDA, which is a measurement that
is not calculated in accordance with U.S. generally accepted
accounting principles (“GAAP”). EBITDA is defined as earnings
before interest, taxes, depreciation and amortization. EBITDA
should be considered in addition to, and not as a substitute for,
net income in accordance with GAAP as a measure of performance.
Additional Information
In connection with the Transaction, we intend to
file a registration statement on Form S-4 with the Securities and
Exchange Commission (“SEC”) that will include a proxy
statement/prospectus relating to the merger. SECURITY HOLDERS ARE
URGED TO READ THE PROXY STATEMENT/PROSPECTUS AND ANY OTHER RELEVANT
DOCUMENTS WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN
IMPORTANT INFORMATION ABOUT THE TRANSACTION. A definitive proxy
statement/prospectus will be sent to stockholders of ADES seeking
approval of the Transaction. The documents relating to the
Transaction (when they are available) can be obtained free of
charge from the SEC’s website at www.sec.gov. These documents (when
they are available) can also be obtained free of charge by
contacting us at 8051 E Maplewood Ave, Ste 210, Greenwood Village,
CO 80111, Attn: General Counsel.
No Offer or Solicitation
This communication does not constitute an offer to
sell or the solicitation of an offer to buy any securities, or a
solicitation of any vote or approval, nor shall there be any sale
of securities in any jurisdiction in which such offer,
solicitation, or sale would be unlawful prior to registration or
qualification under the securities laws of any such jurisdiction.
No offer of securities shall be made except by means of a
prospectus meeting the requirements of Section 10 of the Securities
Act of 1933, as amended.
Participants in the
Solicitation
This communication is not a solicitation of a proxy
from any security holder. ADES and its directors, executive
officers, other members of management and employees may be deemed
to be participants in the solicitation of proxies from ADES’
stockholders in connection with the Transaction. Information
regarding the names and interests in the proposed transaction of
ADES’ directors and officers is contained ADES’ filings with the
SEC. Additional information regarding the interests of potential
participants in the solicitation process will also be included in
the proxy statement/prospectus relating to the Transaction and
other relevant documents when they are filed with the SEC. These
documents can be obtained free of charge from the sources indicated
above.
Source: Advanced Emissions Solutions, Inc.
Investor Contact:Alpha IR
GroupRyan Coleman or Chris Hodges312-445-2870ADES@alpha-ir.com
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