Make REC Great Again!

For a long-term minority shareholder in REC, this week can rightly be described as eventful and encouraging.

Our initiative is fully aligned with the content of Water Street’s letter. We believe a formal investigation is warranted at this point. In our view, the bid from Korea in no way reflects the company’s underlying value.

REC’s technology, the assets in Moses Lake and Butte, the substantial deferred tax asset, and the opportunities in a growing silane market all represent significant value drivers. Additionally, there should still be potential for restarting the idled FBR reactors. When also considering the value implied by the Yulin transaction, the establishment of silane players in close proximity to REC in Moses Lake, and the current trade policy of the U.S. administration, we see considerable long-term upside for the company.

Need for investigation and accountability

We also look forward to an investigation that clarifies who approved the amendments to the agreement between REC and Hanwha, who authorized the testing of polysilicon in China, and – not least – the outcome of that testing. Furthermore, it is crucial to identify who accepted the termination of the FBR offtake agreement and how shareholder capital was allocated leading up to the critical decision to shut down Moses Lake.

Who among these individuals can be considered fully independent of the main shareholder must be assessed case by case. That said, it is no secret that several members of the board, executive team, and nomination committee have direct or indirect ties with the largest shareholders.

A fundamental principle of corporate governance is that the board must act in the interest of all shareholders, including minorities. Board members also have a duty to seek out information when it is lacking, and a clear responsibility to ensure that the company is adequately capitalized at all times.

Management inaction must be met with active ownership

The Q1 presentation came across as a sleep-inducing exercise, likely based on a pre-approved script. Fortunately, we live in a democracy where questions can be asked, and answers are recorded in the minutes. When asked about asset valuation, management stated the replacement value – the cost to rebuild the plants – is estimated at USD 3 billion. That is, of course, not the same as market value.

Despite what many view as a lowball offer, neither the board nor management has taken steps to obtain an independent valuation of Moses Lake or Butte. Nor have they, to our knowledge, made any effort to explore a sale of these assets to relevant players in the anode segment. A potential agreement with Group14 that could have resulted in a prepayment is still not in place. It also remains unclear what steps have been taken to address upcoming debt maturities.

Regarding the format of the general meeting on 25 June, the company has stated that it is planned as a digital event. We sincerely hope that, at a minimum, the CEO and Chair will appear in person in Oslo. Although the school holiday will have started, we believe a larger venue than usual will be necessary, given the level of shareholder engagement.

We encourage you to exercise your shareholder rights, participate, and cast your vote at the general meeting. We also urge you to share your views, and hope that the media and relevant authorities will assume greater responsibility in highlighting what has occurred.

That said, we believe this story has many chapters left – and both positive and negative developments may still lie ahead. We will have to take it one step at a time.

An investigation is governed by Section 5-25 of the Norwegian Public Limited Liability Companies Act (allmennaksjeloven) and must first be approved by the general meeting before a formal petition can be submitted to Asker and Bærum District Court. The requirement for approval is support from at least 10% of the votes cast. There is therefore no need to collect proxies at this stage – but that may change. In any case, we encourage you to exercise your shareholder rights and cast your vote.