February 11, 2010 / 3:47 PM / 9 years ago

UPDATE 2-SunPower to acquire Europe's SunRay for $277 mln

* SunPower will not raise equity capital to finance deal

* SunPower shares up nearly 6 percent (Adds comments from SunPower, Denham capital, and byline; updates share price)

By Poornima Gupta

SAN FRANCISCO, Feb 11 (Reuters) - Solar panel manufacturer SunPower Corp SPWRA.O said it would acquire European solar power plant developer SunRay Renewable Energy for $277 million, sending its shares up nearly 6 percent.

The deal announced Thursday could signal a start to long-expected consolidation in the solar industry, and will expand SunPower operations outside North America.

SunPower plans to pay $235 million in cash and $42 million in a letter of credit and promissory notes, it said.

The San Jose, California-based company also said it had sufficient cash to close the transaction and did not intend to raise equity capital to finance the acquisition.

The deal is expected to close in the first half of 2010, and the company expects to detail the positive impact from the agreement when it releases fourth-quarter financial results in March.

Shares of SunPower were up 5.8 percent to $20.22 in afternoon trading on Nasdaq.

Demand for solar power products has picked up after a difficult 2009, when the global credit crisis dried up financing for new projects and panel prices plummeted.

Many see solar demand growing this year, but the growth could suffer from Germany’s decision to cut subsidies for the industry. Germany is the world’s largest solar market.

SunPower’s move to expand vertically in the sector in Europe “mirrors what we are doing in the U.S.” Julie Blunden, SunPower’s vice president of public policy, told Reuters.

On closing the deal, SunPower will acquire a project pipeline of solar photovoltaic projects totaling more than 1,200 megawatts in Italy, France, Israel, Spain, the United Kingdom and Greece, the company said.

The pipeline includes projects in various stages of development.

“We certainly could supply all the panels for this pipeline,” she said, adding that the planned start-up of a Malaysian fabrication line this year would increase the company’s output capacity.

But Blunden did not say what percentage of 1,200 megawatt pipeline would use SunPower panels, which are among the highest efficiency in the industry.

SunPower worked with SunRay on projects earlier.

SunRay, majority owned by energy and commodities-focused private investment firm Denham Capital, focuses on utility scale projects in Southern European countries.

Scott Mackin, a partner at Denham Capital, said the private equity fund had planned to invest $200 million in the company between 2008 and 2012 but got an opportunity to sell the company much earlier than expected.

“It was a pleasant surprise,” Mackin said. “SunPower approached us. This exit for us comes much earlier than anticipated.”

Mackin said he expects a lot more merger and acquisitions activity in the renewables sector this year.

With the SunRay acquisition, SunPower would expand its power plant development business and complement its European engineering, procurement and construction business.

The move into the engineering, procurement and construction business yields higher total sales per watt installed, Blunden said, even if the overall margin was lower than providing only solar modules.

JPMorgan Securities (JPM.N) was the financial advisor on the deal to acquire SunRay, which has offices in Europe and the Middle East and employs 70 people in its power plant development and project finance team. (Reporting by Poornima Gupta; Additional reporting by Matt Daily in New York; Editing by Lisa Von Ahn and Tim Dobbyn)

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