Energy One (ASX: EOL) And STG Part Ways

During the week, it emerged that Energy One’s suitor STG had reduced its offer from $5.85 to $5.15 per share. This caused the share price to drop to below $4.10, before rebounding to just below $4.50.

Ultimately, it seems to me that STG’s involvement with Energy One was purely opportunistic. Arguably, engaging with STG was the right thing to do given the supposed premium on offer, but with the benefit of hindsight, it was a mistake.

Previously, STG had bought a business (Brady Commodities) from an Energy One competitor (Brady Technologies). Given their interest in entering the energy trading software game, I hope that the knowledge about the industry gained by performing due diligence on Energy One will not ultimately disadvantage Energy One.

Unfortunately, this process has also meant the resignation of former Director Vaughan Busby, one of the major shareholders on the board, who opposed the transaction from the outset. His departure leaves the board less well aligned with ordinary shareholders.

Furthermore, the willingness of the board to consider an offer hints at risk that the board is not as focussed on the long term as they could be. In my opinion, what Energy One needs is another long term focussed board member. If Busby could return, that would be great. Alternatively all Energy One shareholders should lobby the board for a long term focussed board member who has genuinely bought into the company (and holds shares in the company).

Currently, a lot of power and influence accrues to the largest shareholder who remains on the board, Ian Ferrier AM. Generally, I would have no problem with Ian Ferrier wielding a lot of power, but since he is interested in a takeover at around $5.85, it would be good to have another shareholder on the board, such as Vaughan Busby, who has a longer term view (or higher valuation expectations) for the stock. This would ensure diversity of opinion, and robust debate over any potential takeover.

Recently, there has been a lot going on with Energy One. The resignation of Vaughan Busby stands out as a negative, while the news in the annual report that the company had won 2 large accounts, with a very strong pipeline, stands out as a positive.

Balancing the ever-changing risks (and opportunities), I still consider Energy One shares to be attractively priced. I am happy to hold my shares, and might even add to my shareholding (especially on any potential price weakness).

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Disclosure: the author of this article owns shares in EOL and will not sell shares in EOL for at least 2 days following the publication of this article. Please keep in mind the author may buy or sell shares after this date. This article is not intended to form the basis of an investment decision and is not a recommendation. Any statements that are advice under the law are general advice only. The author has not considered your investment objectives or personal situation. Any advice is authorised by Claude Walker (AR 1297632), Authorised Representative of Equity Story Pty Ltd (ABN 94 127 714 998) (AFSL 343937).

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