Selling Exide

Tom Konrad CFA

Electric Storage Battery Company advertisement for Exide batteries in the journal Horseless Age, January 15, 1918

I sold my position in Exide Technologies (NASD:XIDE) on April 25th after the company was forced to shut down its Vernon secondary lead recycling facility by the California Department of Toxic Substances (DTSC.)  In addition to the known arsenic furnace emissions, the DTSC cited the facility’s underground storm water system as not being in compliance with CA requirements.

When I last wrote about Exide, I felt that the problems at the Vernon facility were not as bad as most investors thought.  This forced shut-down, however, seems like it could be the proverbial straw which broke the camel’s back.  With the company’s liquidity already tight, the lack of revenues from the Vernon facility (in conjunction with the ongoing employee expenses and the expenses of fixing any problems) could rapidly mount.

On the other hand, they might be able to fix the problems in a few days, with minimal impact to revenue or cash flow.  Nevertheless, given the company’s existing difficulties, I feel that the downside risks for shareholders outweigh the possible gains from a quick resolution.

Only time will tell if this turns out to be a good move on my part.  Here are a few other factors behind my decision to consider when you make your own decisions:

• Management is already under pressure to improve margins and cash flow, as well as negotiate with possible lenders the refinance debt.  Can they afford the additional distraction at Vernon?  Would the problems at Vernon have gotten this bad if management had been giving them the attention they deserved?
• Even if Vernon can be reopened promptly, this episode has made Lazard’s job of restructuring Exide’s debt harder.  Exide needs to restructure its debt or sell significant assets if it is to return to a long term sustainable footing.

Given the company’s long term problems, my decision really was, “Should I sell today, or wait until the company’s next conference call, in the hope that some good news allows me to get out at a slightly better price?”

In the end, I decided not to wait, but I admit I don’t have a high degree of confidence it was the right decision.  We’ll probably know in a few weeks.

UPDATE

In the week and a half since this was first published, Exide’s 2018 notes have dropped to 65 cents on the dollar, and Exide’s stock has fallen from $1.03 when I sold it to $0.75 at the close on May 3rd. So far. getting out looks like a wise, if belated, decision.

Disclosure: No position in XIDE.

This article was first published on the author’s Forbes.com blog, Green Stocks on April 25th.

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