UPDATE 3-Denmark's Danfoss to buy stake in SMA Solar for $415 mln

Wed Feb 26, 2014 7:04am EST

* To pay 43.57 eur/shr, premium of 50 pct to 60-day average

* SMA Solar to take over solar inverter business of Danfoss

* SMA Solar shares jump 11 pct (Adds details on seller, CEO comments, analyst)

By Christoph Steitz

FRANKFURT, Feb 26 (Reuters) - Danish energy firm Danfoss A/S will buy a fifth of SMA Solar for 302 million euros ($415 million), the German company said on Wednesday, hoping to gain a strong shareholder in its fierce battle against low-cost Asian rivals.

SMA Solar - the world's largest maker of solar inverters, a key component needed to feed solar electricity into the power grid - was long able to shield itself from a sector crisis that has claimed many makers of solar cells and modules, including Q-Cells, Solon and Conergy.

The production of inverters, which transform the direct current produced by solar cells into alternating current, requires deeper technological know-how than that of panels or cells. But Asian peers have caught up fast, causing prices of the equipment to plunge and cutting SMA Solar's operating profit margin to 7 percent in 2012 from about 27 percent in 2010.

"The main trigger to get this transaction done was the joint development and procurement and the cost savings that come along with it," SMA Solar Chief Executive Pierre Pascal Urbon told Reuters. He added that the group was operating in a highly competitive market.

Urbon said he expected to save a double-digit million euro amount from next year as a result of the transaction through joint procurement with Danfoss.

SMA shares were up 11 percent by 1140 GMT, the top gainer in a flat German technology index

"The alliance will open up a cheaper supply of components to SMA via Danfoss' much greater purchasing power. This alone will drive down SMA's bill of materials," said Ash Sharma, senior director at research firm IHS.

BOLD STATEMENT

SMA said Danfoss would pay 43.57 euros per share for the 20 percent stake, a premium of 50 percent compared with the volume-weighted average price of the last 60 days.

The stake will mainly come from SMA Solar's founders, their trusts and families, whose share in the group will stand at 54.95 percent following the transaction, while SMA's free float will remain unchanged at 25.05 percent.

According to StarMine, the bid values SMA Solar at about 14 times its 2014 core earnings, more than twice the 6.4 times that Swiss industrial group ABB paid when it took over SMA's biggest peer, Power-One, last year.

The deal - under which SMA plans to take over Danfoss's solar inverter business - values SMA Solar as a whole at 1.51 billion euros, which is less than half of its all-time high valuation of 3.3 billion euros in 2010.

The deal is expected to close in the third quarter of 2014.

The company said it would launch new products in Europe, China and the United States once the deal is completed.

Danfoss, which employs about 22,500 staff and had net sales of 4.56 billion euros in 2012, said it would not buy or sell SMA shares for a lock-up period of at least two years.

"A shareholding of 20 percent in SMA is a bold statement and proves our continued dedication and confidence in the solar business," Niels B. Christiansen, chief executive of Danfoss, said in a statement. ($1 = 0.7282 euros) (Editing by Catherine Evans)

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