Bend firm’s shareholders at odds

Published 5:00 am Thursday, March 18, 2010

A rift has surfaced recently between shareholder groups of Bend-based Vulcan Power Co. over actions by two East Coast investment firms that included firing the company’s founder.

The struggle, which also has been playing out in courts in Oregon and Colorado, pits a group of shareholders allied with the geothermal company’s founder, Steve Munson, against those who support institutional investors Denham Capital, a private equity firm based in Boston, and Merrill Lynch, which is now owned by Bank of America.

The fight is taking place at a time when interest in geothermal and other forms of renewable energy has been soaring, fueled by looming state mandates to increase the use of renewable energy and investment by the federal government in technology to deliver it.

Founded by Munson in 1991, privately held Vulcan holds geothermal leases on about 170,000 acres of federal and private land in five Western states.

But to get drilling rigs and continue steam exploration, the company needed money, according to a lawsuit filed in Lane County Circuit Court by Munson and a handful of shareholders, who sought damages of at least $50 million in one claim and “many hundreds of millions of dollars” in other claims.

A branch of Merrill Lynch and, separately, Denham Capital showed interest.

Merrill Lynch Commodity Partners invested $35 million in Vulcan in 2007.

Denham Capital, meanwhile, made two investments totaling more than $253 million, one in 2008 and the second in February.

But the two institutional investors gained control of the company and, in November 2008 fired Munson, who lives in Eugene, according to the lawsuit.

On March 4, Vulcan held its annual shareholders meeting in Denver, where shareholders elected several new board members, and on Tuesday, the company announced their election and named all nine directorsin a news release.

Board Chairman Scott Mackin, who is a partner at Denham Capital, touted the energy-sector experience of the new members and the key roles they would play as Vulcan begins development. In late February, the company began drilling production wells in Nevada for its first geothermal power plant.

But Bill Fraser, a board member who lost his seat on March 4, said several board members have ties to Denham Capital, and together, Denham and Merrill Lynch also own half of Vulcan’s common shares. “Denham now has complete, absolute control of the board,” he said.

Fraser, of Florida, also is chairman of the Vulcan Shareholder Rights Protection Committee, which supports Munson and represents 150 investors who hold stock and proxies representing 14 million common shares, according to its new releases and Web site.

On March 3, the committee issued its own statements, declaring a lack of confidence in the company’s current management.

Vulcan’s acting CEO, Bob Warburton, is an operating partner at Denham Capital, according to Denham’s Web site, and four board members hold positions with Denham or Merrill Lynch, according to company news releases and Web sites. A fifth, listed as the independent director, is credited in Vulcan’s news release with the closing of Vulcan’s $108 million investment in January. Vulcan received a $108 million investment from an affiliate of Denham, according to a Feb. 2 announcement from Vulcan.

Members of the shareholder rights committee planned to protest at the meeting in Denver, but according to a Vulcan spokeswoman, the meeting took place with no disruption.

Denham Capital expressed support for Vulcan’s current management, according to a statement issued on March 4, and its “ability to operate and grow the company.”

Denham also pointed out a Lane County judge’s dismissal of many of the claims made by Munson, Fraser and several other shareholders in the Lane County Circuit Court lawsuit.

In a Dec. 21 ruling, Judge Karsten Rasmussen threw out six claims and ordered Munson and the shareholders to pay Vulcan’s attorney fees. However, Munson, Fraser and the other shareholders have filed an appeal in the Oregon Court of Appeals.