Rebecca MacDonald, founder of Just Energy Group Inc., seen here on on Feb. 6 2012, faces the daunting task of restructuring the struggling energy retailer.Fred Lum/The Globe and Mail
Just Energy Inc. founder Rebecca MacDonald counts some of the country’s wealthiest business leaders as friends and supporters of her business. Now, she’s trying to turn those relationships into a bailout for the struggling energy retailer.
Just Energy is a former market darling. Founded in 1997, the company was a top performer as an income trust prior to the sector being shut down in 2006. Ms. MacDonald, the company’s executive chair and former chief executive, has won numerous awards for her entrepreneurial skills. The Serbian-born executive used a series of acquisitions and a door-to-door sales force to build a company that delivers natural gas and electricity at fixed prices to 1.6 million customers in six countries. At the age of 66, she remains actively involved in Just Energy, and serves on blue chip boards such as Canadian Pacific Railway Ltd. and the Royal Ontario Museum.
In part due to Ms. MacDonald’s marketing savvy, Vancouver billionaire Jim Pattison bought in to Just Energy, as did the late Ron Joyce, founder of Tim Hortons. Mr. Pattison and Mr. Joyce’s estate are the two largest shareholders, with a combined 30-per-cent stake, while Ms. MacDonald has an 8-per-cent holding. Just Energy also borrowed money from the Desmarais family’s private-equity fund, Sagard Holdings.
Similar to many companies that expand through acquisitions, Just Energy took on debt to fund takeovers, borrowing a total of $774-million. The company also moved into new sectors, committing $37-million last September to acquire a home water-filtration business controlled by Daniel MacDonald, the founder’s son. Ms. MacDonald recused herself from negotiations on the takeover.
In June, with its stock trading at $5 versus $7 two years ago, Just Energy’s board launched a strategic review of the business in response to unsolicited takeover offers. Analysts predicted the process would result in a quick sale. The majority of Just Energy’s customers are in the U.S. and that market has been reshaped by a flurry of takeovers over the past three years. Large U.S. energy companies are snapping up smaller retailers, companies that are about the same size as Just Energy.
However, in early August, Just Energy announced the departure of its CEO, Patrick McCullough. The following week, the company announced dismal financial results, posting a $275-million quarterly loss and $133-million of writedowns, most of which stemmed from customers in the U.K. and Texas who did not pay their bills. Just Energy also suspended its common share dividend.
Just Energy’s share price tanked in the wake of this flood of bad news – it closed Friday at $1.52 on the Toronto Stock Exchange. Analysts have stopped talking about takeovers and started publishing downbeat reviews of the company’s prospects. Mark Jarvi at CIBC World Markets Inc. said an outright sale of the company is now unlikely. In a report, he said: “We believe it is prudent to assume downside scenarios that could include a failed sales process, weakened credibility, no yield support (assuming the dividend is gone for good) and financial liquidity pressures.”
Where does this leave Just Energy’s deep-pocketed backers? Mr. Pattison and executives at Mr. Joyce’s business declined to comment on Just Energy. However, sources involved in the sales process who asked not be identified because they are not authorized to speak for the company said Just Energy’s two biggest shareholders have told Just Energy’s bankers that they will not commit additional money. Investment dealers Guggenheim Partners, LLC and National Bank Financial Inc. are running the strategic review.
Lenders such as Sagard are also unlikely to commit additional capital. Analysts noted that the company recently borrowed another US$14-million through a high yield credit facility, and had to secure the debt with a personal guarantee from a company director. Just Energy declined comment on who provided the backstop, and would not comment on the strategic review.
Rather than a full-scale takeover, or cash infusion from the likes of Mr. Pattison and Mr. Joyce’s heirs, Just Energy is expected to slowly sell off portions of its customer base, including its U.K. division, to pay down debt. CIBC’s Mr. Jarvi forecasts the stock will trade in the $1.50 to $3 range.
“U.S. wholesale generators, often cited as interested buyers, would likely want the U.S. electricity customers and not the Canadian operations,” said Mr . Jarvi in a report. He said: “Selling Just Energy in a single transaction might not be simple, given the U.K. and Canadian businesses and sizable natural-gas book."
Rather than ending a 22-year-journey at the helm of Just Energy through a takeover at a premium price, Ms. MacDonald faces the daunting prospect of restructuring a company that won an impressive list of backers on her watch.
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