First published by Quoted Cleantech - October 2010

Tanfield directors have rejected a proposal from UK-based Liberty Electric Cars to combine their businesses and instead it wants to press ahead with the merger of  its US associate company Smith Electric Vehicles US (SEV US) with the UK-based Smith Electric Vehicles. Kansas City-based SEV US has paid an option price of $1m in return for an exclusivity period of 60 days to complete the merger.

The plan is for the enlarged group, which itself will need additional cash, to get a NASDAQ listing. This could still be some way away. Tanfield currently owns 49% of SEV US. The merger deal reportedly includes Tanfield licensing technology to SEV US for a 1% per vehicle royalty.

Liberty is appealing directly to the commercial electric vehicles manufacturer’s shareholders and it proposes a share swap which would give it a majority interest in Tanfield and leave the AIM-quoted company owning a minority stake in Liberty. However, it appears that Liberty effectively wants to reverse into Tanfield. A £15m loan would be provided to Tanfield by Liberty to help with working capital. The interest rate would be Libor plus 8.5%.

Tanfield is short of cash so the $1m will come in handy and the loan would as well. Tanfield recently raised £1.8m after expenses from an open offer to shareholders at 10p a share. Even when these latest cash injections are added to the cash in the bank at the end of June 2010 the cash pile won’t necessarily take Tanfield very far into 2011 unless it slashes its cash outflow.

There is no indication whether or not the loan would be secured on any assets but it would seem strange if it were not.

The ultimate goal for Liberty is merging the two companies’ electric vehicles businesses. Liberty wants to make “the North East of England the epicentre of global electric vehicle research, innovation, and production”.

Liberty re-engineers existing luxury cars so that they run on electricity. It has also developed an electric powertrain technology and talks about a potential order for buses in China.

Tanfield’s powered access division is not likely to interest Liberty. It is heavily loss-making at the moment.