Westport Innovations Inc. (USA) (NASDAQ:WPRT) and Clean Energy Fuels Corp (NASDAQ:CLNE) announced on Friday that Westport would acquire Clean Energy’s BAF Technologies and Servotech Engineering in an all-stock transaction for the acquisition worth $25 million:
Westport believes that the amalgamation will create the largest product portfolio and largest market presence in the North American light duty natural gas vehicle (NGV) space. Specifically, Westport Innovations Inc. (USA) (NASDAQ:WPRT) secures its position as Ford’s largest partner under the Qualified Vehicle Modifier (QVM) program with over 10 products and approximately 150 Ford authorized dealerships. The transaction allows both Westport and Clean Energy Fuels Corp (NASDAQ:CLNE) to focus on the significant growth opportunities as natural gas emerges as a global fuel for transportation.
What should investors make of this news?
Better focus on core business and growth opportunities
For both Westport Innovations Inc. (USA) (NASDAQ:WPRT) and Clean Energy Fuels Corp (NASDAQ:CLNE), this deal serves as a way to really focus on growing important parts of their businesses. And since both companies are relatively reliant on the success of the other, especially over the next few years, this deal makes a lot of sense. BAF Technologies in many ways competes directly with Westport, working with Ford Motor Company (NYSE:F) to convert OEM vehicles to natural gas, where Westport and Ford’s WiNG program builds NG-powered new Ford pickups. In the past, BAF Technologies was an important source of both revenue and more importantly new fuel customers for Clean Energy, but shifting this asset to Westport Innovations Inc. (USA) (NASDAQ:WPRT) and its expertise in the conversion/manufacturing side of the NG fuel game, will let Clean Energy Fuels Corp (NASDAQ:CLNE) focus on its core business of refueling. Moving forward, both will be much more aligned in their efforts to convert more vehicles away from gas and diesel, and to natural gas.
The power of a true partnership
Taking it to the next level, there is an additional part of the agreement that results in both companies contributing significant financial resources to co-marketing efforts. These efforts should help further ramp up the adoption of natural gas engines by large fleets. Again, from the press release:
– $5 million payable in March 2014 as payment for co-marketing activities by Clean Energy Fuels Corp (NASDAQ:CLNE) over the next two years
– Clean Energy will provide 750,000 GGEs (gasoline gallons equivalents) of CNG, to be used by Westport Innovations Inc. (USA) (NASDAQ:WPRT) as marketing and “bundling” incentives. Fuel is useable anywhere in the Clean Energy network of CNG fueling stations until December 2015.
– Clean Energy will provide support for Westport product sales and marketing
– Westport and Clean Energy will collaborate on specific customer situations, industry activities and joint policy positions
– Clean Energy will commit to fulfill at least 50% of its light and medium duty natural gas commercial vehicle needs from Westport and BAF during the term of the marketing agreement
By working together, both parties are going “all-in” on expansion, and this agreement formalizes what has been viewed as a strong working relationship already. And while not a direct part of this agreement, Ford Motor Company (NYSE:F) (and its customers) benefit from the focus and partnership of two very central players in the future of natural gas as a fuel source. This further cements the cost benefits of this fuel versus gasoline and diesel as delivered by Clean Energy Fuels Corp (NASDAQ:CLNE), as well as shifting the technical focus of engine technology to the industry leader, Westport Innovations Inc. (USA) (NASDAQ:WPRT).
And with Ford shares having gone up significantly already this year mostly on the back of strong sales of its F-series pickups, more good news for pickup buyers is another good reason to expect this trend to continue:
Foolish bottom line
Ford and Westport Innovations Inc. (USA) (NASDAQ:WPRT) shares have performed very well in a strong market year to date, while Clean Energy shares have lagged the S&P 500 (though a nearly 6% increase isn’t too shabby.) While Ford’s global dominance and long-term success won’t give shareholders the upside of Clean Energy and Westport, its predictable profitability (and 2.5% dividend yield) is worth a long-term investment look.
If you’re looking to catch onto the explosive potential in natural gas as a fuel for transportation, the conversation for many begins — and ends — with Westport and Clean Energy Fuels Corp (NASDAQ:CLNE). And while I am watching closely for huge growth in the second half of 2013 for both companies, there’s no such thing as a sure bet. Start a small position and watch closely before adding to it. The most wise investing words I’ve ever heard apply here: “If it’s as big as we hope, I won’t need much. If it’s not, I won’t want much.”
And that’s advice that applies here, no doubt about it.
The article Westport and Clean Energy’s Latest Deal: It’s All About Growth Now originally appeared on Fool.com and is written by Jason Hall.
Jason Hall owns shares of Ford, Westport Innovations, and Clean Energy Fuels. The Motley Fool recommends Clean Energy Fuels, Ford, and Westport Innovations. The Motley Fool owns shares of Ford and Westport Innovations. Jason is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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