GT Solar could be next solar takeover target

BANGALORE Sun May 22, 2011 12:37pm EDT

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BANGALORE (Reuters) - Solar and LED equipment manufacturer GT Solar International Inc's string of contract wins and robust share gains this year could attract suitors eager for a foothold in a relatively stable corner of the volatile solar power industry.

Headquartered in Merrimack, New Hampshire, GT Solar makes equipment to manufacture both the cells used to make solar panels and polysilicon wafers, the solar industry's key raw material. It is the world's third-largest supplier of photovoltaic solar equipment behind U.S. rival Applied Materials Inc and Germany's Centrotherm.

Last year, GT Solar also entered the burgeoning LED business with its purchase of sapphire maker Crystal Systems. As the solar industry seeks to consolidate, however, many see the relatively small GT Solar as a seller rather than a buyer.

"If a company like Applied Materials or even one of the other big semiconductor capital equipment makers needed to quickly increase their exposure to the solar market, GT Solar would fit very well," said Kevin Landis, manager of the Firsthand Alternative Energy Fund. GT Solar is the $7 million fund's largest holding.

French energy major Total SA's $1.37 billion recent offer for a majority stake in U.S. panel maker SunPower Corp, and chip and solar equipment manufacturer Applied Materials' deal to buy Varian Semiconductor Equipment Associates Inc for $4.9 billion, have invigorated hopes of more dealmaking in the solar industry, and GT Solar's strong balance sheet, growing order backlog and limited exposure to Europe are big selling points.

European markets such as Germany and Italy have been the driving force behind the solar industry in recent years, but generous government incentives in those nations are drying up and investors are eager to see companies move into growing markets such as China and the United States.

"We certainly expect companies that are leveraged to emerging markets outside of Europe to see disproportionate market share growth given a stagnation in European growth," analyst Alex Morris of Raymond James said on Thursday.

As new solar markets take off, large technology and industrial companies might seek to enter or ramp up their solar power operations.

"Traditionally, we've seen acquirers come almost exclusively from industrial conglomerates and the tech sector, which is what I'd expect if someone were to make a bid for GT Solar," Morris said. "That's one of the things that made the Total-SunPower deal so interesting; that it was a major oil and gas producer doing the acquiring."

Aside from top solar equipment maker Applied Materials, potential acquirers could include Swiss conglomerate Oerlikon Corp AG, LED equipment maker Veeco Instruments Inc, thermal processing equipment maker BTU International Inc, wafer processing equipment maker Amtech Systems Inc and semiconductor equipment maker Novellus Systems Inc as potential suitors.

GT Solar has stunned the market recently by announcing more than $710 million in orders since the end of April. Its stock has gained 28 percent in that time, although one analyst said the stock is still undervalued relative to what it could bring to an acquirer.

"Out of all the public equipment companies, it is the most profitable. It is going to command a much bigger premium than a comparable," said Wunderlich Securities analyst Theodore O'Neill, who rates the stock "buy" but owns none.

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