Nordion Inc. suffered a stunning defeat in an arbitration case, cut its dividend, and saw its stock price plunge by more than one-third Monday.
Despite the setback, Nordion insists it still has strong mix of businesses and will continue to grow.
“We’re certainly disappointed” in the arbitration decision, said Tamra Benjamin, Nordion’s vice-president of public and government relations, but the company intends to continue with all its businesses “full speed ahead,” she said.
Nordion, which sells medical isotopes for testing, treatment and imaging, lost a key battle with its isotope supplier Atomic Energy of Canada Ltd., when an arbitrator ruled that it deserves no compensation for the 2008 shutdown of AECL’s program to develop a new nuclear reactor called Maple.
The Maple project, which Nordion had supported with as much as $350-million of its own money, was supposed to replace unreliable and aging AECL reactors with new technology. But design problems and cost overruns prompted AECL to pull the plug.
Nordion asked an arbitrator to force AECL to restart the program, or to pay it compensation, and many investors expected an award of up to hundreds of millions of dollars.
The announcement that Nordion not only lost the fight, but was suspending its dividend and cancelling stock repurchases, stunned analysts and hammered the shares Monday. The stock fell from above $10 to $6.64.
The news was “about as bad as it gets,” said RBC Dominion Securities analyst Douglas Miehm, who had placed a 20-per-cent probability on Nordion losing the arbitration. Nordion could still pursue a lawsuit against AECL, he noted, but the arbitrator ruling “has significantly impaired its position” if Nordion decides to take further legal action.
Nordion said it may also also end up paying some of the legal costs AECL incurred in the arbitration process, and these “could be material,” the company said in a release.
Alan Ridgeway, an analyst at Paradigm Capital Inc., said one reason for Nordion’s precipitous stock drop may have been that many investors had expected a positive outcome from the arbitration and that view was priced into the stock – until Monday.
Another contributing factor, he said, was the surprise suspension of the dividend. Any shareholders that were in Nordion for the yield will likely pull out, unless they think the dividend will be reinstated quickly, he said. The dividend cut appears to be an “extra-cautious” move by the company, he added.
Ms. Benjamin said the dividend was suspended because of the uncertainties related to the costs of the Maple dispute, along with other issues such as the potential legal costs of an internal investigation into the conduct of a foreign supplier, and concerns over its pension fund obligations.
The dividend “will be re-evaluated on a regular basis” and could be reinstated some time in the future, she said.
In some ways, the Maple decision removes uncertainty about the future sources of medical isotopes because it is now absolutely clear there will be no Maple program, Ms. Benjamin said. For the next few years AECL will continue to supply isotopes from its old reactor – although it has been plagued by shutdowns and maintenance issues – while Nordion develops new supplies from Russia or elsewhere.
And “as far as our business is concerned, it is strong, it is solid, we’ve got good cash flow and we are financially stable,” Ms. Benjamin said. Nordion gets about 40 per cent of its revenue from medical isotopes, about 40 per cent from its sterilization technologies segment, and about 20 per cent from “targeted therapies” which provide radioactive treatments for cancer.