September 29, 2016 - 5:52am EST by
2016 2017
Price: 35.00 EPS 0 0
Shares Out. (in M): 5 P/E 0 0
Market Cap (in $M): 177 P/FCF 0 0
Net Debt (in $M): 0 EBIT 0 0
TEV ($): 0 TEV/EBIT 0 0

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  • Litigation
  • lawsuit


EAM Solar (EAM NO Equity)


"This company is now effectively a giant lawsuit." Viktor Jakobsen, CEO, EAM Solar 


Thesis summary and some background

EAM Solar is a Norwegian company trading on the Oslo Axxess Exchange. EAM Solar operates, or rather, used to operate a number of solar power plants in Italy. As a victim of contractual fraud from the seller of a portfolio of power plants in Italy, EAM has seen its share price tumble from 100 NOK to 35 NOK. The seller of the plants was Aveleos, a company owned jointly by Avelar Energy (a Switzerland-based energy company controlled by russian billionaire Viktor Vekselberg's company Renova as well as Enovos, a large energy company based in Luxembourg. A short time after the sale of the portfolio was completed, it was revealed that the Italian government had conducted an in-depth investigation of the sellers for fraud and arrested and indicted two of the directors of Aveleos. The sellers had misrepresented certain facts about the timing of completion of the plants. By doing this they were entitling the plants to government tariff contracts (Feed-in Tariffs) that they were not in fact eligible for, obviously a crime.

EAM had actually carried out an extremely thorough due diligence lasting over six months. They even went so far as using private investigators to do background checks on key persons in the process to check for any mob ties etc (this being assets located in southern Italy). They still got screwed. As things played out, they paid a 115m EUR for what is now mostly worthless garbage. In the transaction, EAM took over the existing debt on the plants of 73.4m EUR and the rest of the amount, about 41m EUR was freshly raised equity. Because without the Feed in Tariffs on the plants, there was little money to be made. The tariffs made this whole thing economically viable. And were obviously the reason why EAM bought the plants.

I believe EAM will be able to collect damages from these sellers. They are suing for 212m EUR, which is something like 380 NOK per share (EURNOK = 9.1). That seems high, even taking into account that this amount should also cover the debt on all the plants in question (originally 73.4m EUR but now higher since EAM is not servicing this debt currently). I think it is more reasonable to assume that they should at least be compensated for the cash flows they will now never receive from the Italian state plus some damages. Putting that figure at 120 NOK per share is probably conservative. That's more than 3.4x today's share price.



So will they win?

The legal case seems very clear to me. The seller Aveleos sold the plants and are responsible whether they knew about the fraud or not. Viktor Jakobsen of EAM is no longer pulling his punches and has said publicly that there is no longer any doubt that Avelar and Enovos management knew about the fraud. "They crossed their fingers and hoped for the best, but got busted." Board members of Avelar and Enovos signed the relevant documents, Enovos' CEO Jean Lucius signed the contract himself and started Aveleos in the first place. They are obviously responsible.

As you can see in red below, the criminal court of Milan has already declared EAM as the victim of contractual fraud in prior proceedings and this has also been added as a separate point in the criminal case against the two Aveleos directors, who are also formally charged with fraud against the state of Italy. The Milan criminal court has also recently declared very clearly that the parent companies of Aveleos are financially responsible for what has occurred. After criminal proceedings in all likelihood find the defendants in the criminal case guilty, not only of fraud against the Italian state but against EAM Solar in the matter of contractual fraud, Avelar and Enovos will no longer be able to avoid being held responsible in a civil lawsuit. A verdict in the case is expected in 2017.

The key point here is this: If a fraud indeed has been committed against the state of Italy, which everything I have seen so far suggests, it follows that EAM must also necessarily have been victims of fraud. It then becomes a matter of time before EAM wins a civil case and gets paid. 

Instead of trying to make amends as they should have to begin with, the directors of Enovos and Avelar have tried to stall and hoped that in time, EAM would go bankrupt and that the problem would go away. They have now painted themselves into a corner by categorically denying any wrongdoing and are now even threatening to sue EAM for defamation. In my opinion, an innocent party would simply have dismissed the allegations as baseless. The way they react stinks to high heaven. I think it's possible that they will eventually reach a settlement with the sellers in spite of the seller's seeming desire to take the matter to trial but it doesn't look like the most likely outcome now. 

Another key point: the companies that EAM are suing have the ability to pay. Enovos has assets worth billions of Euros, and Viktor Vekselbergs entities combined have a value of over 15 Bn Euros.



So why does this opportunity exist if this is all so clear cut?

The stock is illiquid and the market cap is only 186m NOK. These factors explain the opportunity- it's just too small for most people to bother. There are also  several confusing legal processes going on simultaneously, the outcomes of which are all still unclear. And those who did bother to invest in EAM to begin with and have followed the case closely enough to realize what is going on, are mostly too tired now to put more money to work here. For liquidity reasons this situation is obviously also only suitable for very small funds or private accounts. When I'm still writing it up it's because I think it's a very profitable situation with a very high expected return. Finally, it's not really clear cut, is it. Anything can happen, EAM may lose. But it seems unlikely given the developments so far.



Little residual value if they lose the case.

In a downside case where they lose the case, I think there is little residual value in EAM, probably no more than 10-15 NOK per share (Applying a 4-5x EBITDA (about 1.75m EUR annually) multiple to the remaining unaffected power plants yields a value of 12-15 NOK per share of EAM. I'm going with 10 to be extra conservative.

Legal action is expensive. Might they run out of cash?

According to the CEO, EAM is also able to fund legal processes with cash from other, non-affected plants (they own a few more that are producing as usual) for now. The unaffected plants owned by EAM produces about 15mNOK in EBITDA. Currently, the cash burn on legal matters is about the same. (Maintenance capex is virtually nil, maintenance costs are booked under operating expenses). Importantly, the company has a strong main shareholder in Sundt AS who can be there to provide a loan if need be. They have about 17% of the shares. Sundt AS is the private investment company of Norwegian shipping heirs Else Helene and Christian Sundt and Leiv Askvig manages several billion NOK as the CEO of this entity. The EAM investment is pocket change to them, but we have met with Mr Askvig previously and this situation is something that pisses him off to no end. He was the one to originally set this whole thing up with Viktor and Audun at EAM, and they even sit in the same office building in Oslo, so they stay in close contact. I believe Sundt AS will fund EAM should the company run out of cash while pursuing this case (this may have dilutive effects of course). 

Key man risk:

Viktor Jakobsen is essential. Should he become ill or get hit by a bus tomorrow, I don't think anyone can replace him. Nobody knows this case like he does. Last year he clocked almost 4000 hours for EAM working virtually nothing but this case.

Creditors on the affected plants can bankrupt EAM (they are not getting paid currently):

Creditors on affected plants have nothing to gain by trying to bankrupt EAM. There is nothing to gain economically here unless EAM wins its case against Aveleos/Avelar/Enovos. If they wanted to do that, they would have done so already. That's why their sitting quite still despite not getting paid what they're due (there's also a question of whether EAM really owes them money - a rational argument can be made that since they're a victim of fraud, their agreement with EAM is void, and EAM therefore can't be held responsible. The banks are owed by the sellers, who were the ones who made the deals with the banks on plants they knew to be illegitimate).



The case in a nutshell is that EAM Solar were the victims of contractual fraud when buying what was then called the P31 portfolio of power plants in Italy. It looks more and more unlikely that the sellers will get away with this fraud. EAM Solar is pursuing the sellers any way they can to recoup their losses. The CEO Viktor Jakobsen is excellent and will not quit until he wins or dies trying. The man is on a mission. If EAM wins, the stock will at least triple. The probability of EAM winning the case are in my subjective opinion at least 70% at this point. (I actually think the probability is higher, but I'm trying to be extra conservative here). The downside if they lose is -71% to 10 NOK per share and the upside is +342% (to 120 NOK per share). 

The probability weighted expected return from the situation could then be written like this: E = (70% * 342%) + (30% * -71%) = 218%.

Assuming it takes 3 years to get paid, the p-weighted expected CAGR is (2.18/1)^(1/3) = 0,2966 = 30%. 

Should EAM get the full 212m they ask for, the upside is obviously much larger.


I recommend reading the below and the company's last few quarterly reports as a background on how the case has developed over time if the situation is of interest to you. And after you have done that, write to or call Viktor - he's always ready to answer questions and talk to investors despite an insane schedule and long hours. 




Appendix: EAM published the following release on september 23rd as an update on the legal processes now underway:


23rd of September 2016

Following the fraudulent sale of 31 Solar PV power plants to EAM Solar ASA in July 2014 by Enovos Luxembourg SA and Avelar Energy Ltd through their jointly owned special purpose vehicle Aveleos SA of Luxembourg, the so-called "P31 Acquisition", EAM group has been forced to pursue EAM's legal and economic rights in several legal venues due to the unwillingness of the sellers to respect their contractual obligations in accordance with the Share Purchase Agreement entered into the 31st of December 2013.

At current, EAM has 6 separate legal proceedings in progress or recently finalized, and in addition, between 2 and 4 further civil and criminal legal processes underway to be formally initiated. The following is an update on the status of these legal proceedings.

The financial reporting through annual and quarterly reports issued since July 2014 contains further details relevant for the interpretation of this stock exchange notice and can be found on the company web site (www.eamsolar.no).

1) Proceedings in the Criminal Court of Milan

Following the Criminal Court of Milan's decision to start tribunal proceedings in March 2016 in the case of criminal fraud against the State of Italy and EAM Solar ASA, the tribunal conducting the proceedings commenced on the 7th of June 2016.

In the initial three hearings of the Tribunal, the formal decisions of March 2016 and appeals filed by the indicted and civilly liable companies to be excluded from the criminal proceedings have been reviewed by the Court. EAM has summoned Enovos Luxembourg SA and Avelar Energy Ltd as financially liable parties for the damages suffered by EAM. In the court ruling issued the 13th of September 2016 the Court judged that Aveleos SA is merely an alter ego of the two companies and as such Enovos and Avelar are financially liable parties. The Courts ruling is public information and can be seen EAMs web site (www.eamsolar.no/investors/p31-acquisition-legal-information/).

The next session in the criminal court of Milan is on the 2nd of November 2016, and in total 8 trial sessions has been scheduled between November 2016 and March 2017.   

2) Administrative legal proceedings against GSE in the Administrative Court of Rome

Following the suspension of payments of the FIT contracts initiated by GSE in August 2014, and the permanent termination of the FIT contracts in Q4'2016, EAM appealed GSE's termination decision to the appropriate legal venue, the Administrative Court of Lazio in Rome. The appeal was based on the necessity to achieve a decision in the matter sanctioned by the appropriate Court.

EAM also summoned Aveleos and the financing banks to participate in the appeal of the termination decision. However, both Aveleos and the financing banks abstained from participating in court or to provide any factual information that would result in an annulment of GSE's termination decision, thereby waiving their rights of remedy on accordance with the rights and obligations in the Share Purchase Agreements.

On the 9th of June the Administrative Court of Lazio issued their ruling that gave unreserved support and legal verification of the termination decision by GSE, thus making the termination a lawful fact.

The court concluded that the power plants does not have the right to the FIT contracts due to the fact that the have not been built in accordance with technical rules and regulations, and that the FIT contracts was obtained based on falsified documentation.

An important consequence of the ruling is that most of the PV modules on the power plants no longer have valid CE certification, consequently the power plants have lost the right to operate and be connected to the grid and any insurance is no longer valid. Based on this the power plants permanently closed operation on mid June 2015, and are now considered electronic scrap with a recycling obligation in accordance with the EU WEEE Directive.

3) Criminal complaint with civil action in Luxembourg against Enovos Group and managing directors in Enovos

In February 2016, based on the evidence at hand, EAM Solar ASA and associated companies and individuals filed two criminal complaints with civil damages actions to the Court of Luxembourg. One criminal complaint was filed against Aveleos SA, and one criminal complaint action against Enovos Luxembourg SA, Enovos International SA, Jean Lucius, Michel Schaus, Peter Hamacher and Martin Technau (all employees in the Enovos Group), and the Aveleos board directors, Igor Akhmerov and Marco Giorgi (employees of Avelar Energy Ltd).

EAM has been under obligatory investigation confidentiality in this matter until Tuesday the 20th of September 2016 and has therefore not reported this fact earlier. The Prosecutors office in Luxembourg currently handles the criminal complaint.

The civil action contains damages claims in excess of EUR 215 million stemming from the contractual fraud against EAM solar ASA in conjunction with the P31 Acquisition.

4) Breach of standstill agreement proceedings against Aveleos SA in the Court of Luxembourg

In October 2014, EAM entered into a so-called standstill agreement with Aveleos SA that also encompassed Enovos, Avelar and its employees. The purpose of the standstill agreement was to give the sellers time to resolve the payment suspension measures of GSE and to document the necessary facts confirming the validity of the FIT contracts and the technical feasibility of the power plants within a limited time frame of 6 months. In exchange for this the sellers pledged to finance the running costs of the criminally affected power plants with a minimum of EUR 5 million in liquidity until the above matters was resolved.

In exchange for this pledge and the promises given by the sellers, EAM lifted the injunction achieved on the bank accounts of Aveleos SA in Luxembourg in September 2014 in order to avoid the immediate bankruptcy Aveleos SA in October 2014 as threatened by the Enovos and Avelar directors.

Aveleos and its Directors breached the standstill agreement already in November 2014, as confirmed in the ruling by the Civil Court of Milan (Enterprise Matters Specialized Section) in September 2015 and by the Criminal Court of Milan in the ruling the 13th of September 2016.

In the Autumn 2015 Aveleos summoned EAM again in Luxembourg court in order to misuse the standstill agreement to achieve exclusion from the criminal proceedings in Milan in order for Enovos and Avelar to escape legal proceedings. On the 20th of September 2016 Aveleos asked the court of Luxembourg for a postponement of these proceeding, which was granted until January 2017.

5) Financial restructuring and voluntary liquidation plan for the criminally indicted SPVs in the Bankruptcy Court of Milan

Following the FIT termination decision by GSE, the criminal affected SPVs filed for a financial restructuring procedure ("Concordato Preventivo") with creditor protection. This was granted by the bankruptcy Court of Milan until the 8th of July, and then further extended to the 6th of September 2016.

EAM has been forced to act as a custodian for the SPVs affected by the criminal proceedings since July 2014. EAM has performed this task in order to protect the values of the SPVs and minimize any financial damage arising from the criminal proceedings and its legal and operational consequences.

Following legal and technical clarifications achieved during July and August 2016, the Sole Managing Director and the shareholder of the SPVs, in an understanding with the Bankruptcy Court of Milan, determined that a financial restructuring would be unachievable under the laws governing such procedures, mainly due to the fact that the SPVs are criminally indicted, but also due to technical administrative reasons. Therefore the companies filed for a voluntary liquidation and bankruptcy procedure with the Bankruptcy Court of Milan on the 22nd of September 2016.

As the custodian, EAM will ask the Bankruptcy court of Milan to review the bankruptcy in light of the Italian civil code article 1227 concerning gross negligence of creditors.

6) Initiation of Arbitration proceedings in the Chamber of Arbitration in Milan

On the 12th of September 2016, EAM Solar ASA and EAM Solar Italy holding Srl filed a summons to the Chamber of Arbitration of Milan against Aveleos SA. The objective of the filing is to have the entire Share Purchase Agreement and associated agreements annulled based on fundamental breach of contract. The annulment is merited by the various court rulings obtained in Rome and Milan that substantiate the validity of EAM's legal and financial claims.

In addition to the reversal of all transactions, EAM is also seeking damages for the economic losses imposed on EAM through the fraudulent sale of the P31 companies.

Aveleos SA has 30 days to respond to the arbitration summons.

7) Future legal proceedings to be initiated in Italy and Switzerland

Based on the legal rulings achieved, and clarification and validation of facts evidencing the fraud, EAM is in the process of initiating further criminal and civil legal proceedings.


Future legal actions will be formally initiated going forward in Italy and Switzerland against companies and individuals with a documented responsibility for participating in the fraud against EAM. The timing of legal actions is based on the finalization of various forensic investigations and third party validation of the forensic investigation results.

For information, please contact:

Viktor E Jakobsen, CEO, phone +47 9161 1009viktor@eam.no

About EAM Solar: EAM Solar is a utility company that acquires and operates solar power plants. The Company currently owns solar PV power plants in Italy. The plants are operating under long-term sales contracts.


 Shareholder structure

Total number of shares  5070000,00  
Warrants outstanding  179 000  
Shareholders Shares %
SUNDT AS   840 000 16,57
CANICA AS   725 000 14,30
PACTUM AS   312 500 6,16
MP PENSJON PK   228 100 4,50
TOLUMA INVEST AS   175 000 3,45
LUDVIG LORENTZEN AS   152 695 3,01
ALDEN AS   146 875 2,90
AKA AS  110918722874 125 000 2,47
MELLEM NES INVEST AS   125 000 2,47
EXTELLUS AS  c/o Ludvig Lorentzen 105 000 2,07
AREPO AS   93 750 1,85
FLU AS   62 500 1,23
SANDEN A/S   50 000 0,99
OJN INVEST AS   50 000 0,99
TIGERSTADEN AS   48 599 0,96
NHO - P665AK  JP MORGAN CHASE BANK 46 000 0,91
Other shareholders 1 217 635 24,00




I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise hold a material investment in the issuer's securities.



A verdict in the criminal case against the Aveleos employees

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