Ballard signs historic strategic collaboration with Weichai Power, advancing China strategy

Equity investment of approximately $163M from Weichai, at 15% premium; Weichai to be Ballard’s largest shareholder
• Deal includes $90M technology transfer, Joint Venture establishment, Weichai commitment for at least 2,000 fuel cell commercial vehicles
• Broad-Ocean Motors to increase holdings to retain 9.9% ownership for additional proceeds of approximately $20M

Ballard Power Systems announced at a public event in Jinan, Shandong Province, China that it has entered into a strategic collaboration with Weichai Power, which includes (i) a substantial equity investment by Weichai in Ballard of approximately $163 million, representing a 19.9% interest in the company and reflecting a price based on a 15% premium to the 30-day VWAP, (ii) establishment of a joint venture (“JV”) to support China’s burgeoning Fuel Cell Electric Vehicle (“FCEV”) market, (iii) a $90 million technology transfer program to the JV related to Ballard’s next-generation LCS fuel cell stack and power modules for bus, commercial truck and forklift applications in China, and (iv) a commitment by Weichai to build and supply at least 2,000 fuel cell modules for commercial vehicles in China, as announced by Weichai

In addition, Zhongshan Broad-Ocean Motor – a current Ballard strategic investor and Chinese partner – has agreed to invest a further approximately $20 million at the same 15% premium to maintain its 9.9% ownership position in Ballard. As a result, the Weichai and Broad-Ocean equity investments in Ballard will total approximately $183 million.

All the foregoing transactions are expected to close in Q4 2018, subject to completion of definitive agreements, regulatory approvals and other customary closing conditions.

Established in 2002 and with listings on the Hong Kong and Shenzhen stock exchanges, Weichai Power is a automotive and equipment manufacturer specializing in the production of powertrains, automobiles, intelligent logistics, automotive parts and components. In 2017 Weichai manufactured more than 617,000 engines, 149,000 heavy duty trucks and 200,000 forklift trucks, and generated total revenue of 151.57 billion RMB (approximately $22.7B), with an employee base of 74,474 people.

Subject to closing, the strategic collaboration announced includes these key elements:
1. Strategic Equity Investments – Weichai will purchase a sufficient number of Ballard shares so as to hold a 19.9% ownership position following the transaction (including completion of Broad-Ocean’s share purchase), becoming Ballard’s largest shareholder. This equity investment will generate approximately $163 million of gross proceeds to Ballard through the subscription and purchase of shares issued from treasury at a price per share of $3.54 based on a 15% premium to the 30-day VWAP (volume weighted average price) of $3.08.

Weichai’s investment will be subject to 2-year “standstill” and resale restrictions (subject to customary exceptions). For so long as Weichai holds at least 15% of Ballard’s outstanding shares, it will have the right to nominate two directors to Ballard’s board of directors, and Ballard will expand its board from the current seven directors to nine directors after closing. Weichai has also agreed that, in the event of a third-party offer to buy Ballard, Weichai will have the right to make a superior proposal or otherwise must vote its shares in accordance with the Ballard board recommendation.

In addition, Broad-Ocean has agreed to purchase a sufficient number of Ballard shares so as to maintain its 9.9% ownership position (after completion of Weichai’s purchase). This equity investment will be made at the same price per share as paid by Weichai and will generate approximately $20 million of gross proceeds to Ballard through the subscription and purchase of additional shares issued from treasury.

Proceeds are planned to be used for investment in Ballard’s core fuel cell business and to support M&A transactions.

2. Technology Transfer and China Joint Venture – Weichai and Ballard have agreed to form a joint venture company in Shandong Province, China, with Weichai and Ballard initially owning 51% and 49%, respectively. The JV will pay $90 million to Ballard under a technology transfer program for the exclusive rights to manufacture Ballard’s next generation LCS fuel cell stack and certain LCS-based modules for the bus, commercial truck and forklift markets in China. The JV will exclusively purchase Membrane Electrode Assemblies (MEAs), a critical technology component of each fuel cell, from Ballard under a long-term supply agreement. Weichai and Ballard will fund pro rata shares of the JV based on a business plan that is currently under discussion. Weichai will hold three of five JV board seats and Ballard will hold two, with Ballard having certain shareholder protection provisions. Ballard will also retain an exclusive right to the transferred technologies outside China.

Broad-Ocean has also expressed an interest in acquiring a 10% ownership position in the JV, which would correspondingly reduce Ballard’s ownership position. Discussions regarding this investment are currently underway between the parties.

3. Fuel Cell Sales – Weichai separately announced that it has agreed to supply a minimum of 2,000 fuel cell modules for commercial vehicles in China by 2021. This is the largest announced planned commercial fuel cell vehicle deployment in history globally. Specific terms related to the supply of fuel cell power modules for commercial vehicles, including scope, product mix, pricing and timing of shipments, are under discussion between Weichai and Ballard.

Source: http://www.ballard.com