Suzlon Energy, world's fourth-largest wind turbine maker has acquired an additional 22.48% stake in German wind power company REpower for nearly $400 million from Martifer SGPS SA (Martifer). This would take the holding of Suzlon in REpower to 90%, the company said informing the BSE. The company had picked up an additional 30% in REpower from its French rival Areva in June this year. Suzlon had teamed up with Portugal's Martifer, forming an SPV in February last year, to launch a bid for REpower. Suzlon had fought a bidding war with Areva to finally win the bid for acquisition of REpower in may last year. Suzlon had signed an option agreement with Potuge firm Martifer to acquire its stake and this is to be completed by December 2008.
The bidding war for acquisition of REpower started in January last year when Areva offered € 109 per share for the company. It subsequently increased this bid to € 140 per share. Suzlon had offered € 150 per REpower share, valuing the German wind turbine maker at around € 1.2 billion ($1.6 billion). This price increased to € 1.35 billion after a capital increase.
The acquisition of REpower is not Suzlon's only big ticket acquisition in Europe. In 2006, Suzlon had acquired Hansen Transmissions International NV, a leading wind turbine gearbox manufacturer in Belgium for € 465 million in an all-cash deal. Recently it has also been reported that Suzlon is planning to acquire Coimbatore-based Shanthi Gears.
The Deal
It was in May that Suzlon expressed its intention to hike its 33.66 percent stake in RE Power Systems AG, as per an outstanding agreement with the German wind power equipment manufacturer RE Power Systems. It also said that it has firmed up the euro syndicated loans it needed to fund the transaction. Meanwhile, in conjunction with Suzlon's fourth quarter earning statement, country’s wind man, Tanti also said that the company might offload part of its equity in RE Power to create more value for the shareholders.
Suzlon Energy had acquired the REpower stake at 150 euros per share. Post Tanti's statement, there was a huge run up in the prices of Suzlon which traded at 238 euros in the Frankfurt market, a gain of over 90% since the stake was acquired. It was an attempt by Tanti to deflate the prices and pick it up when it is the right time. Suzlon has finally further tightened its grip on REpower Systems, whose technology will help Suzlon upgrade its facilities and have a strong competitive edge in the offshore market (turbines installed in water).
Tanti's Predicament
Suzlon Energy, which Tanti founded, confronts two main challenges says a report in Wall Street Journal. First, the 144-foot-long windmill blades the company sold to energy firms including California's Edison Mission Energy have begun to split in some locations, and Suzlon has had to recall 1,251 blades. That represents the majority of blades the company has sold in the United States, and a cost of at least $30 million to the company to repair the cracked blades and reinforce the rest.
Also, the second major challenge for Suzlon is gaining access to the wind industry's most advanced technology. Suzlon is actually in a prime position to do so through its 33.6 percent ownership stake in the innovative German turbine manufacturer, REpower. The problem for Suzlon, however, is that under German law, REpower can consider Suzlon a "competitor" since it does not own a majority of the company.
It is therefore not obliged to transfer its blueprints to Suzlon; Suzlon would need to buy out the minority shareholders. And REpower is refusing to share the technology at present in order to protect the interests of those minority shareholders. This explains the above mentioned financial engineered move of Tanti.
Positives and Negatives
As of late last year, the firm had a $3.5 billion order backlog and wind power demand in general has been growing significantly. Suzlon's annual sales amount to $1.8 billion. The company announced a net profit of Rs 482.55 crore for the quarter ended March 2008 as against Rs 437.82 crore in the corresponding quarter last year. Total income of the company was Rs 2,786.83 crore for the March quarter from Rs 2,097.55 crore for the quarter ended March 2007, Suzlon said