N.Y.-Based Firm to Buy 70% of San Diego Firm’s Common Shares : $100 Million in Energy Factors Stock to Be Sold

New York-based Sithe Energies Group has agreed to buy 70% of Energy Factors Inc.’s common stock in a deal valued at $100 million, the companies said Friday.

Sithe announced that it has bought 4.7 million shares of newly issued Energy Factors common stock for $10 per share, or $47.5 million in cash. Sithe also agreed to buy 5.2 million newly issued common shares for $52.5 million on or before May 15, 1988. Sithe will provide Energy Factors with an irrevocable letter of credit covering the future stock acquisition.

Sithe, which owned 225,000 Energy Factor shares before the deal, now owns 53.4% of Energy Factor’s outstanding common stock. That stake will rise to 70% once Sithe completes the second stock purchase in 1988.

San Diego-based Energy Factors designs and operates energy production plants for utilities, hospitals, manufacturers and other businesses. Sithe has developed four hydroelectric plants in this country and is building five other plants. Compagnie Generale des Eaux, France’s largest privately held water-utility company, is Sithe’s majority owner.

Sithe’s $100-million investment in Energy Factors will help the company arrange financing for several proposed co-generation projects, observers said.

“Energy Factors got all of what it needs,” according to Larry Selwitz, a Los Angeles-based industry analyst with Bateman Eichler, Hill Richards Inc. He said the deal gives the company the equity to finance several proposed co-generation projects.

In addition to the cash infusion, “Energy Factors is sitting on an enormous amount of investment tax credits and tax loss carry forwards,” Selwitz said, adding: “Their cash flow should be superb in 1989 and 1990.”

The Energy Factors deal will “assure (Sithe’s) place among the nation’s leading independent energy producers,” according to William Kriegel, Sithe Energies Group managing partner and chief executive.

“We believe Energy Factors will now have a unique ability to acquire and develop additional projects throughout the country.”

Energy Factors, which closed down 1 3/8 at 10 in over-the-counter trading Friday, will continue to trade publicly. However, the agreement announced Friday does not bar Sithe from acquiring additional Energy Factors shares.

The Sithe deal was the evident culmination of on-again, off-again talks. In May, Energy Factors said it had agreed to be acquired by Sithe through a tender offer for all outstanding EFI shares in a deal valued at about $80 million.

However, that deal fell apart on June 5 when Sithe backed away from a letter of agreement to acquire Energy Factors.

“The previous deal would have sent all the money to the shareholders, while this deal brings the money to the company so we can develop more projects,” according to Energy Factors Vice President Rick Kay, who said the company has $334 million in projects under development and in construction.