Analysis: Solar companies a tough M&A nut to crack

FRANKFURT Mon Jun 27, 2011 9:15am EDT

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FRANKFURT (Reuters) - Snatching up a well-managed and profitable solar company has crept up the agenda of every global energy player trying to expand its solar portfolio in a post-Fukushima world.

The nuclear disaster at Japan's Fukushima plant in the aftermath of a massive earthquake and tsunami in March, and Germany's subsequent decision to pull out of nuclear power completely, has given extra impetus to the argument for renewable energy.

Observers have been predicting a takeover spree for years but buying into the green energy boom is difficult since many of the most attractive firms in the solar sector are part-owned by their founders or chief executives, making direct takeover attempts tricky.

Nevertheless, in April it appeared as though the starting gun had been fired: French energy major Total SA (TOTF.PA) made a landmark $1.4 billion offer for a majority in U.S.-based SunPower SPWRA.O and Swiss solar equipment maker Meyer Burger MBTN.S bid 356 million euro ($504 million) for German peer Roth & Rau R8RG.DE.

Then in May a survey carried out by consulting firm KPMG showed that a third of investors and executives in the renewable energy sector were targeting investments in the solar industry over the next 18 months.

The solar industry is a rich hunting ground for utilities and industrial conglomerates, offering a plethora of attractive takeover targets in a young sector that is still at the beginning of its consolidation process -- in contrast to the wind energy sector -- and seen as the forefront of new, exciting technology.

But the story of the solar industry is also one of founders and pioneers that want to hold on to their companies in the current boom and acquisitive prowlers will have to bring their full powers of persuasion to bear.

"It's an industry where real entrepreneurship played a very important role," said Michael Tappeiner, an equity analyst at UniCredit.

"These are real entrepreneurs that have built their companies under their own steam and they know their products in and out," he added.

PROTECTIVE OWNERS

Germany, the world's largest solar market, is full of sector leaders that would make attractive M&A targets. However the two biggest and most alluring companies also have very protective owners who have set up solid defenses to any hostile takeover by limiting the free float of their company shares.

Frank Asbeck, founder and chief executive of SolarWorld SWVG.DE -- at 1.1 billion euros Germany's second-largest solar company by market value -- is a case in point.

Nicknamed the "sun king" for his outgoing nature as much as his most recent career choice, Asbeck first made headlines in late 2008 when launching a takeover offer for the German factories of General Motors' (GM.N) Opel unit.

Now he owns 27.80 percent of his solar company and said earlier this month that selling his stake was "out of the question." [ID:nLDE75D100]

Germany's Centrotherm CTNG.DE, the world's No.2 solar equipment maker, has been holding up well during the industry's crisis due to strong demand from Asia, triggering the company's first ever dividend proposal earlier this year.

More than half of the company's voting rights are held by its Chief Executive Robert Hartung, who is also a majority shareholder of TCH GmbH which holds 50 percent of the Centrotherm's shares. His father, Rolf Hartung, holds a 15 percent stake in TCH GmbH.

"Entering the solar market aggressively through acquisitions appears less likely," UniCredit's Tappeiner said with regard to bolt-on acquisitions at larger utilities.

TECHNOLOGICAL EDGE

Lupus Alpha fund manager Bjoern Glueck said that companies with a real technological advantage would also be top takeover targets and named Wacker Chemie (WCHG.DE) and SMA Solar (S92G.DE) in particular.

Wacker Chemie is the world's No.2 producer of polysilicon, a key raw material for the solar and semiconductor industries.

Underscoring its attractiveness, nearly two thirds of analysts compiled by equity research analysis firm StarMine rate it a buy. Since its initial public offering (IPO) in April 2006 Wacker Chemie's shares have gained nearly two thirds.

Similarly, shares in SMA Solar, the world's largest maker of solar inverters, have seen equal gains since their IPO in June 2008.

But more than half of voting shares in Wacker Chemie are owned by the Wacker family. And more than 70 percent of SMA Solar is held by its founders and their families through holdings and foundations.

SMA, Germany's most profitable solar group, has repeatedly ruled out significant changes to its shareholder structure.

Only harsh difficulties, analysts agree, could lead those companies into the arms of big cash-rich groups, a scenario that is not unlikely given the number of uncertainties in such a young and busy industry that still depends on subsidies.

PERFECT PARTNERS?

A more likely stop-gap is a trend for partnerships. Solar companies will struggle to go it entirely alone given their lack of investment and problems with economies of scale.

Zhengrong Shi, founder and chief executive of Suntech Power STP.N, the world's biggest maker of solar cells, said selling his 30 percent stake in the company would not be an option.

However Shi, who won Fortune Magazine's award for Asia businessman of the year in 2009, added that companies would find other ways to link up.

"In the long-term, a partnership across the value chain will be quite feasible, it will be inevitable," he told reporters in Germany earlier this month.

($1=.7066 Euro)

(Additional reporting by Daniela Pegna; editing by Sophie Walker)

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