Tepid Interest In Genie Exchange Offer…So Far

We recently took a look at Genie Energy’s (GNE) exchange offer. While I highly recommend checking out our earlier piece and related comments for some background info (and to boost our traffic), here is a brief summary: Shareholders of Class B common units can swap shares on a 1 for 1 basis for newly created preferred shares which would trade under the ticker GNE.PR. The new preferreds will have a liquidation value of $8.50, pay an annual dividend of $0.6375 (~7.5% yield) plus a potential additional dividend of 7.5% * ((IDT Energy EBITDA >$32M)/8.75m). The preferred shares would be redeemable by the company after five years or after four years at 101% of the liquidation value. Up to 8.75m shares would be offered in the exchange and CEO/majority shareholder Howard Jonas would not participate.

Since our initial writeup, the company has extended the exchange offer not once, but twice. The current expiration date is now listed as Wednesday, October 10th, however please check with your individual brokerages to see if you need to respond at an earlier time or date. A mere 464K shares were tendered by September 4th, however demand has since ticked up as 1.1m shares were tendered as of September 18th. One possible reason for the sudden increase could be due to the fact that the offer’s minimum requirement of 4.75m shares was since waived. One no longer had to worry about tendering and not getting filled.

It seems that so far, most shareholders are content to follow Mr. Jonas’ lead and hang onto the potential in the company’s shale assets. The allure of high yields in this environment must be strong though and it looks like these preferreds will outyield Preferred ETF’s like PFF and PGX although I am not sure how the risk profiles of the ETF’s constituents compare to GNE. My feelings on this situation are unchanged.

The reason I stress ‘so far’ is that although tendered shares can be pulled back, many brokerages will not release their intent to tender shares until much closer to the real deadline. As a result, the final number could be much higher.

Disclosure: Author currently holds shares of GNE.

3 thoughts on “Tepid Interest In Genie Exchange Offer…So Far

  1. SynSleeper

    Stil can’t decide whether to hold class B or do both because essentially it is a bet on potential on oil play if one is to only hold class B. The risk reward is fantastic, but the probability on success is probably less than 50-50 given the political risk and other kinds of risks involved. It’s a cheap bet for Mr. Jonas compared to the potential payoff.

  2. HypeZero

    I think it is an easy call. Stock is the way to go.

    The have a lot of cap ex coming up over the next few years as they start the pilot phase in 2013 in Israel and Colorado. It is entirely possible that they stop paying dividends in a couple of years to preserve money for cap ex. If you want dividends, there are plenty of stable preferreds paying 7%+ interest. You want the upside if the shale initiatives do pay off.

    Check out full analysis on valuation of Genie at http://www.hypezero.co.

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