TheChek News Flow

Only a handful of clean-energy companies have the necessary scale to attract the attention of investors.

It has been a disastrous year for clean-energy stocks, with higher interest rates battering profits. Share prices for almost every solar, wind, and hydrogen company—and several electric-vehicle makers—have fallen by double-digits.

But clean energy’s long-term trajectory is still angled sharply upward. A new generation of companies, undaunted by the current challenges, is moving toward the public markets just as the world begins pouring real money into the energy transition—more than $1.7 trillion this year alone.

Because the transition represents a stark change with plenty of unproven technologies, these companies all come with high risks—but also potentially high returns. It isn’t often that investors can place bets on a sea change in the gargantuan world of energy. There are dozens of promising clean-energy companies, but only a handful with the necessary size for public markets.

“Just because your technology works, it’s meaningless in the energy industry,” says Gene Berdichevsky, CEO of Sila Nanotechnologies, an electric-vehicle battery company. “It’s amazing the scale that it takes just to get in the game.”

With that in mind, it’s worth considering the small group of companies—Sila among them—that have broken out of the pack and could go public in the next couple of years, most with valuations of more than $1 billion. Most were born from lab work and garage-tinkering. Now they’re the new energy unicorns.

New battery manufacturing plants are popping up all over the U.S., helped by the Inflation Reduction Act. But the materials that go into batteries are in short supply domestically, and recycling scrapped products will be a key way to replenish those materials.

Redwood Materials, based in Carson City, Nev., is a significant player in the battery-recycling industry. Redwood was founded by JB Straubel, the former chief technology officer and co-founder of Tesla. It has already inked deals with Toyota Motor, Volkswagen, and Panasonic to recycle battery materials. It even recycles some lithium-powered Amazon.com products. By 2025, the company aims to produce enough anode and cathode material to power one million electric vehicles. By 2030, its goal is to make five times that much.

edwood is a leader in the nascent industry, because it has a factory already up and running, notes TD Cowen analyst Jeffrey Osborne. That facility recycles material from the Panasonic gigafactory, which builds batteries for Tesla, and other partners. The company got a loan from the Department of Energy to expand its Nevada operations and is building a new factory in South Carolina.

Redwood plans to build “circular” factories that take used material from electric-vehicle makers and process it into parts that can be used in new cars. Toyota announced a deal in November where it will pay Redwood to take material from old electric and hybrid vehicles like the Prius and turn them into cathodes and other items for Toyota’s new EV factories. Cathodes are the most valuable part of the battery, making up about half its value. Right now, there’s almost no cathode manufacturing in the U.S., so auto makers are scrambling to secure as much domestic content as possible. Localizing the supply chain is “central to our mission,” says Jason Thompson, Redwood’s CFO.

Redwood’s business plan isn’t without risk. Competitor Li-Cycle Holdings halted work on a factory in upstate New York in October, and its stock has tumbled 85% this year. Redwood faced some supply disruptions during Covid, but otherwise its capital plan is moving forward on schedule, Thompson says. It helps that top executives worked at Tesla, and are no strangers to obstacles: “We’re fortunate to have that kind of capability on our team.”

Replacing fossil-fuel energy with cleaner alternatives will reduce carbon dioxide emissions. But even a world where every car is an electric vehicle won’t be carbon-free. To reach climate goals, it will be necessary to remove existing carbon from the air. Climeworks is focusing on that goal. “You can think of us as sort of a last-mile provider to net zero,” Climeworks CFO Andreas Aepli tells Barron’s.

Climeworks removes carbon dioxide from the air using a machine that resembles a supersize home air purifier. Fans push air through filters that capture the CO, after which it gets turned into liquid and pumped underground. Within two years, the liquid carbon solidifies into mineral form and is expected to stay there indefinitely, Aepli says. The company has a facility in Iceland, which removes 4,000 tons of carbon a year.

Climeworks isn’t the only company trying to capture carbon directly from the air. Plans have been announced for 130 plants around the world, and Occidental Petroleum agreed in August to buy Climeworks competitor Carbon Engineering for $1.1 billion. But Occidental’s plants will pump much of the carbon it captures back into oil wells to force more oil out.

Climeworks’ business model is different. It commits to storing the carbon indefinitely and sells those commitments to corporations, which are willing to pay up for verifiable carbon offsets. JPMorgan Chase, for instance, is paying Climeworks more than $20 million to remove carbon from the air as part of its plan to offset all of its operational carbon emissions by 2030. UBS, Shopify, and Microsoft are clients, too. Climeworks has presold over $100 million worth of revenue, Aepli says.

David Heikkinen, a longtime energy investor who now works at carbon-capture company Carbonvert, has evaluated Climeworks and thinks it’s a “great idea” that still might be “overhyped” given how much energy it takes to remove a single ton of carbon. Aepli acknowledges that inefficiency—he says it would take 1,200 miles of air to be pulled through a filter inlet that’s 10 feet wide to capture one ton of carbon. But there aren’t other readily available ways to reduce the world’s existing carbon emissions.

And the company is scaling up. Climeworks is expecting to add another 36,000 tons of capacity in Iceland next year. It’s also planning a facility in Louisiana that can remove one million tons of carbon—one of three “megaton” facilities it hopes to be operating by 2030. By 2050, Aepli thinks the world will need thousands of carbon-suckers of that size.

Oil is starting to go out of style, at least when it comes to transportation. But it’s much harder to replace petroleum in other areas, such as chemicals. Chemical production contributes 5% to 6% of greenhouse gas emissions, and those emissions are particularly hard to abate.

Solugen is one of the up-and-coming companies looking to solve that problem. The company’s first breakthrough came when the founders discovered an enzyme that could transform sugar into other chemicals, such as hydrogen peroxide. They built their first reactor with PVC pipes and other materials they picked up at Home Depot. Since then, they have vastly expanded the capabilities of their technique, using artificial intelligence to engineer enzymes that can make a wider array of products. The company now creates products for several industries, including household goods like detergents and cleaners. In October, Solugen announced a partnership with South African chemicals company Sasol to test Solugen’s chemicals in its consumer products.

But co-founder and CEO Gaurab Chakrabarti’s ambitions go much further. He believes that to make a significant dent in emissions, companies will need to replace fossil-fuel chemicals used in industrial applications like water treatment and construction. Solugen says it can replicate a majority of the world’s chemicals using its process. The company even sells materials to fossil fuel producers themselves—a striking role for a company looking to wean the world off its oil dependence.

“We have to live in the middle right now,” Chakrabarti said in a recent interview at Solugen’s Houston headquarters. He doubts fossil fuels are going away soon.

The company’s “bioforge” where it makes chemicals is located on the site of a former wax distillery that exploded in 2004, damaging nearby buildings. Solugen’s reactions happen at much lower temperatures than at traditional chemical plants, meaning it doesn’t rely on volatile heat sources. Outside the Houston plant, tanks of corn sugar sit near the company’s enzyme reactor, a tall metal cylinder where much of the magic happens, before the chemicals are sent to processing tanks and then into storage. Inside the plant, workers tinker with new products, monitoring Solugen’s chemicals as they slosh around in appliances like dishwashers.

To make a real dent in the pollution caused by the chemicals industry, Solugen will have to scale up quickly. The U.S. chemicals industry is a $600 billion behemoth that touches every corner of the economy, and it has proven particularly difficult to disrupt. Energy giants such as Exxon Mobil are putting more focus on chemicals and plastics as electric vehicles eat into fuel demand. Solugen’s annual revenue is nearing $100 million a year, and it is now working to scale up. The company is building a 500,000-square-foot factory in Minnesota, next to a corn complex owned by ag giant ADM, which will supply Solugen with feedstock. The success of that factory, set to open in 2025, will determine whether Solugen can clean up one of the world’s most carbon-intensive industries.

Driving-range anxiety is one of the biggest problems holding back electric-vehicle adoption. Sila Nanotechnologies says it has developed a technology that can solve it. Sila develops batteries using silicon instead of graphite in the anode, which the company says allows the battery to hold at least 20% more energy than even the best batteries in use today. That should give drivers more range and “make it much more appealing to consumers,” says Sila CEO Berdichevsky. Mercedes-Benz seems to agree. The auto maker invested in Sila in 2019, and announced a supply deal last year that’s expected to launch in the middle of the decade.

Berdichevsky is an engineer who was Tesla’s seventh employee, working on the battery for the original Roadster. He and two co-founders launched Sila in 2011 out of Georgia Tech University. EV makers have been trying to figure out how to make durable silicon batteries for years, because silicon is one of the most abundant elements on earth and is much more efficient than graphite. But it is known for expanding dramatically when it is fully charged, causing it to wear down over time. “Basically, with silicon, the cookie crumbles and gets gooey,” Tesla CEO Elon Musk once said. So Sila’s founders spent years re-engineering the material, going through 70,000 iterations to find the right material for the battery, Berdichevsky says. For the past five years, the company has been scaling that technology up.

Silicon’s unique chemical characteristics should allow auto makers to make batteries smaller without sacrificing range, Berdichevsky says. It’s also easier to obtain than graphite, which is made almost entirely in China today.

Unlike many electric-vehicle start-ups, Sila is already producing revenue, though it doesn’t disclose how much. It makes batteries for consumer electronics, including fitness trackers. But EVs are a much bigger opportunity, and Sila’s technology could be powering a line of Mercedes vehicles in two to three years. The company is now building a factory in Washington state with the help of a $100 million grant from the Department of Energy. By around 2028, Berdichevsky says it will make enough batteries to supply several million vehicles.

Oklo

Nuclear energy has been gradually declining as a share of U.S. power production, to about 18% today. But a group of entrepreneurs is working to reignite the industry, which could take on a bigger role at a time when countries need more carbon-free power. Today, most American nuclear plants are behemoths built to generate hundreds of megawatts worth of power. Building new plants can take decades, and they often run over budget. But the new wave of nuclear start-ups aims to change the timeline and the price tag.

Sunnyvale, Calif.–based Oklo is one of them. It also happens to have one of the most famous founders in Silicon Valley on its side—Sam Altman. The OpenAI CEO has been Oklo’s chairman since 2015, after founder Jake Dewitte went through the start-up accelerator YCombinator while Altman was running it. Oklo’s technology is “one of our best shots to get out of the energy crisis and get into this world of energy abundance,” Altman said in a video promoting the company.

The Nuclear Regulatory Commission rejected Oklo’s first application for a nuclear reactor last year because it hadn’t submitted enough information. But the company is working on reapplying and has made deals with other branches of the government. The Defense Department issued a notice of intent to award a contract to Oklo for power and heat at an Alaska Air Force base as part of a pilot program, and the Department of Energy gave the company a site use permit in Idaho for its first plant.

Oklo’s reactors are different from most nuclear reactors in operation today. Existing U.S. reactors use technology that slows down neutrons and cools reactors with pressurized water. Oklo’s reactors will allow for faster reactions and be cooled with liquid sodium, a process that allows the facilities to use recycled nuclear material and produce less waste. Sodium coolants have been used successfully before, but designs that used water eventually became the standard due to nuclear-physics and commercial reasons that made sense when nuclear plants were expected to provide enough power for hundreds of thousands of homes. Oklo’s commercial ambitions are different, though. It plans to sell smaller amounts of power to facilities like data centers and factories. And because its plants are much smaller—around 15 megawatts versus the 500-megawatt plants that operate today—it can build them more efficiently.

Next year, Oklo plans to go public via a special purpose acquisition company, or SPAC, by merging with a company called AltC that was co-founded and is run by Altman. Nuclear-energy experts are watching closely. Rodney Rebello, an analyst focusing on nuclear at Reaves Asset Management, said in an interview that Oklo “could be a really disruptive company. There’s a large market to capture.” But he wouldn’t invest in the company on day one, given its current lack of permits.

“There are no red flags,” he says. “But at the same time, you are years away from producing revenue.”

Large investment pools next year will have to report substantial positions in a stock much quicker.

Shares of Phillips 66 got a pop recently, but it had nothing to do with oil prices. The catalyst was hedge fund activist Paul Singer, whose firm, Elliott Investment Management, disclosed a $1 billion stake in Phillips. Elliott wants Phillips to cut costs at its refinery operation; if it works, Elliott says, the stock could rise by 75%.

Shares of Phillips 66 got a pop recently, but it had nothing to do with oil prices. The catalyst was hedge fund activist Paul Singer, whose firm, Elliott Investment Management, disclosed a $1 billion stake in Phillips. Elliott wants Phillips to cut costs at its refinery operation; if it works, Elliott says, the stock could rise by 75%.

It’s a familiar playbook on Wall Street: secretly build a stake in a stock, then capitalize when other investors find out and bid up the shares. As hedge funds see it, the pop is just the start, and everyone wins if activist pressure prevails on its target and the stock winds up higher.

Regulators, however, aren’t so enamored of the secrecy part and could make activism harder to pull off. Rules going into effect early next year will require funds, endowments, and other large investment pools to report substantial positions in a stock much quicker. More consequentially, funds may have to disclose other stakes in a company held through certain types of derivatives—revealing far more information about their true economic interest.

The rules are part of a broader push by the Securities and Exchange Commission to lift secrecy surrounding hedge funds. Other recently finalized rules force hedge funds to report data on short sales, or bets against a company’s stock. The short-sale data are anonymous to the public, but hedge funds are suing the SEC, alleging that the rules require them to divulge too much information. The SEC says it plans to “vigorously defend challenged rules in court.”

Hedge funds are trying to water down the changes related to disclosures of large positions and swaps, which they say will make activist campaigns costlier and could thwart them by tilting the playing field in favor of corporate boards. The rules “will likely have a chilling effect on shareholder rights and shareholder activism,” said the Council for Investor Rights and Corporate Accountability, a trade group representing hedge funds, including Dan Loeb’s Third Point and Elliott, in a statement to Barron’s.

The rules would chip away at activist secrecy. Starting in February, hedge funds will have to report a 5% stake in a company within five business days, down from 10 calendar days currently. The SEC also wants hedge funds to reveal economic interests in a company held through a derivative called a swap. Hedge funds previously weren’t required to publicly disclose those positions; under rules that could be finalized early next year, they would have to disclose swaps worth at least $300 million within a business day in many circumstances.

The SEC says there’s no good reason to keep ordinary investors in the dark for so long or to obfuscate funds’ true stakes in a company. An economic analysis conducted by the SEC found that most activist funds built their positions within five days, implying little impact by speeding up disclosures. Supporters of the rules point to Europe, where quicker disclosure and lower thresholds for reporting have been in effect with scant impact on activism.

Hedge funds are fighting for secrecy because it “creates greater opportunities for insiders and others to exploit the rest of the markets,” said Tyler Gellasch, head of Healthy Markets, a trade group that includes pension funds and other asset managers.

As the SEC sees it, disclosing swap positions could also help prevent financial contagion. The swaps rule came as part of the response to the 2021 collapse of Archegos Capital Management. Archegos used derivatives to make huge bets on stocks like ViacomCBS (now Paramount Global ) and Baidu . Since Archegos spread its swap positions among multiple banks, the total wasn’t known, and some banks took huge losses when Archegos had to liquidate holdings. Credit Suisse, for one, lost $5.5 billion in the debacle.

Hedge funds say that more transparency will stymie activism. Funds can take weeks to build a stake, especially in small or illiquid stocks that are more sensitive to large purchases. Since stocks usually rise once a prominent activist is known to be involved, there may be less gains for a fund in a costly and lengthy activist campaign.

Company boards may also have more time to erect roadblocks such as “poison pills” that can trigger share dilution measures, thwarting a fund from gaining control. Bryan Corbett, CEO of the Managed Funds Association, says the rules undermine activists and “discourage investor engagement that strengthens corporate governance.”

Activists are pressuring the SEC to soften its stance. Elliott has written six letters to the agency criticizing the swaps rule. Executives from Elliott and Nelson Peltz’s Trian Partners have also separately met with the SEC on the rule, according to public disclosures. Elliott escalated its campaign in November, suing the SEC for not responding to public records requests for documents related to the rules’ development. The SEC hasn’t responded to the complaint.

Hedge funds aren’t the only critics. Fund company T. Rowe Price and Harvard University’s endowment manager say the rules are burdensome and object to aspects of the swap-disclosure rule.

Corporate defense attorneys are among the biggest winners. The law firm Wachtell, Lipton, Rosen & Katz, for instance, has pushed for quicker disclosures for years. The changes would give lawyers and companies more time to build defenses against activists. Attorneys who wrote the proposals didn’t respond to requests for comment.

Behind the fight lies the question of whether activism delivers strong results for hedge funds or investors more broadly. In aggregate, the numbers don’t look great for activist hedge funds: They’re up an average 9.3% this year through November, compared with a 19% gain in the S&P 500 index, according to data firm HFR. Over the past three years, the funds have gained about 12%, compared with a 32% return for the S&P 500.

Whether activism pays off for investors may depend largely on timing. A Goldman Sachs study this year found that the median stock targeted by an activist outperformed its peers by three percentage points in the week after a campaign launch, but turned negative after six months. The researchers did find that an equal-weighted portfolio of all activist targets since 2006 would have beaten the Russell 3000 by three percentage points annually on average.

Performance aside, activism is having a resurgence. Campaigns hit a lull during the pandemic but have rebounded to 2019 levels, according to Diligent Market Intelligence. Prominent campaigns this year included Carl Icahn tackling gene-sequencing firm Illumina, Trian Partners taking on Walt Disney , and Elliott targeting Crown Castle.

Activists don’t always prevail, of course. Disney fended off Dan Loeb’s effort last year to force a sale of ESPN, though Disney has recently considered selling part of the business. Elliott has tried and largely failed to lift PayPal Holdings

stock. Activists pushing for changes at Salesforce backed off after the company posted better-than-expected results in the second quarter.

With Phillips, Elliott wants the company to add board members with refining-operations experience to help accelerate cost-cutting. If that takes hold and the company can hit its 2025 earnings goals, Elliott estimates the changes could push the stock up roughly 75% from its level before Elliott announced the campaign. Elliott’s other ideas for lifting the stock include asset sales like its European convenience stores and a chemical business.

For now, Elliott and Phillips appear to be on good terms. Elliott says it supports Phillips’ leadership. The company says that it “plans to continue a constructive dialogue” with the hedge fund. Still, Elliott has a long history of aggressive tactics when its demands are spurned, including court and proxy battles that can take years. Now that its Phillips campaign is in the open, investors should have a ringside seat if a fight breaks out.

Iliad wants to finalise JV proposal for Vodafone Italy by end-January -sources

LONDON/MILAN (Reuters) - French telecoms group Iliad wants to finalise a proposal to Vodafone Italy to combine their Italian operations in a joint venture by the end of January, two sources briefed on the matter said.

Vodafone CEO Margherita Della Valle, under pressure to improve profitability, said last month the British group was reviewing options for its Italian operation, the last of three troubled European markets she had said need to be fixed.

Total revenue in the Italian market has fallen by 21% in the last decade to 27.1 billion euros ($29.6 billion), according to trade association Asstel, amid cut-throat price competition.

Della Valle said in November that no operator was delivering returns above the cost of capital. Iliad offered 11.25 billion euros to buy Vodafone Italy last year, but was rebuffed.

It is now exploring a joint venture, the sources said, adding that the French company is working to finalise a proposal by the end of January.

French billionaire Xavier Niel, founder and majority owner of Iliad, bought a 2.5% stake in Vodafone last year through an investment vehicle.

Iliad and Vodafone declined to comment. While Vodafone has been considering options including a straight sale or a joint venture, it might prefer to remain in Italy, one of the people and another source said, cautioning deliberations are ongoing.

Recent media reports say that Vodafone is also evaluating a potential combination of its assets with those of Swisscom's Italian unit Fastweb. A deal with Fastweb would create Italy's second largest fixed-line broadband operator, with a strong footprint in the prized business segment.

A spokesperson for Swisscom declined to comment. Della Valle told reporters last month after its first-half results that Vodafone was exploring consolidation opportunities in Italy, where it had a "very strong" company, but there was no timeline for any decision.

She said its position in Italy was "very different" from that in Spain, where it agreed to sell its business to Zegona Communications in October, with a "strong" brand and network. Any deal will need to be cleared by EU antitrust regulators, who have previously taken a tough approach towards mergers that shrink the number of players in a country from four to three.

But with Fastweb emerging effectively as the fifth nationwide mobile network operator, a deal could be easier to get antitrust clearance in Italy than in other regions, Citi analysts said in a note this month.

Creditors including Pimco and Davidson Kempner may wind up taking over SVB’s roughly $10 billion venture capital business, sources say

A process to sell the venture-capital arm of bankrupt SVB Financial, the former parent of Silicon Valley Bank, has fallen flat and creditors are now gearing up for a potential takeover of the business.

Two front-runners had been vying for SVB Capital: a duo of Anthony Scaramucci’s SkyBridge Capital and Atlas Merchant Capital, and San Francisco private-equity firm Vector Capital, The Wall Street Journal reported in September.

Those bidders aren’t moving forward in the process, after SVB considered the bids to be too low, according to people familiar with the matter. Instead a group of SVB Financial’s creditors is planning to take over the venture capital business for themselves, the people said.

SVB Capital has around $10 billion in assets under management, including investments in venture capital funds, direct investments in tech companies, and a book of private loans. It was expected to fetch anywhere between $250 million and $500 million. Bankers at Centerview Partners were advising the parent company on the process.

If new bidders don’t show up to buy the business, it would stay in the reorganized SVB Financial which could be controlled by creditors including Pacific Investment Management Co. and Davidson Kempner Capital Management once the bankruptcy is done, the people said.

The creditor group organized earlier this year and hired PJT Partners to help them as the collapsed firm sold off its private-wealth and other units.

Silicon Valley Bank’s parent company filed for bankruptcy in March after federal regulators took over the bank, which collapsed when depositors lost confidence and ran for the exits.

The bankrupt company has been selling off assets through the chapter 11 process. It sold the investment banking arm, SVB Securities, for $100 million in July.

Suitors for the $11 billion company could include private equity and technology firms

E-signature company DocuSign DOCU 14.22%increase; green up pointing triangle is working with advisers to explore a sale, in what could be one of the largest leveraged buyouts in recent memory.

Conversations are in the early stages, people familiar with the situation said, and there are no guarantees a deal will be reached. DocuSign could attract interest from private-equity firms and technology companies.

A deal could be sizable, given the San Francisco company’s market capitalization of over $11 billion.

DocuSign’s technology allows users to securely send and sign documents from almost anywhere, using any device. Customers range from individual business owners to large corporations, including smartphone maker Apple, and Aon, the big insurance broker, according to the company’s website.

DocuSign went public in 2018 and was valued at about $6 billion at the time. The company, founded in 2003, was among a class of unicorns that made their public market debut that year, including Spotify and Dropbox.

The company thrived during the pandemic as ubiquitous remote work fueled demand for virtual signing of deals, mortgage papers and other documents. However, demand for the technology eased faster than expected as return-to-office trends accelerated and the combination of rising inflation and fears of a recession cooled the market.

DocuSign’s stock is close to flat so far this year. For the period ended Oct. 31, its quarterly revenue rose 9%, beating market expectations, and it swung to a profit.

Private-equity firms have been less active this year than normal due to a consistent gap between buyer and seller price expectations as well as elevated interest rates that make doing deals more expensive. Leveraged buyouts, in which firms employ swaths of debt to do their largest deals, are down some 30% so far this year, according to data-provider Dealogic.