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BL Research Bureau

Suzlon Energy’s agreement to acquire Portuguese company Martifer’s share in REpower Systems (German wind turbine generator in which Suzlon Energy holds 66 per cent) is a positive move that is likely to speed up business integration between Suzlon and REpower.

Suzlon has entered into an agreement to exercise its option for an early acquisition of Martifer’s holding in REpower.

Suzlon’s original option was due only in 2009; the current agreement would help the company conclude the deal before December 15, 2008.

Once Suzlon concludes this acquisition, its stake in REpower would raise to 90 per cent. Suzlon had already indicated its commitment to a long-term relationship with REpower when it purchased Areva’s stake in June this year.

However, the key debate was whether Suzlon would be able to tap REpower’s technology for its portfolio of medium- and high-end wind turbines.

Under German law, REpower would be under no compulsion to go for a technology transfer unless Suzlon opted for a dominant stake (which requires a 75 per cent shareholder approval).

This would also trigger a tender offer to minority shareholders. With Suzlon soon to control a 90 per cent stake in REpower, technology transfer may well become a reality.

Access to technology apart, Suzlon can build on the strengths of REpower in Europe – considered to be the largest wind energy market in terms of absolute volume over the next few years.

The current acquisition, for a consideration of €270 million (Rs 1,730 crore), works out to €131 per share.

This is significantly below REpower’s current market price of €224 and also below the earlier acquisition prices.

Suzlon had raised debt, mostly in foreign currency, even before the subprime crisis, and locked into reasonable borrowing costs.

These funds were mainly set aside for the acquisition of REpower and Hansen Transmissions. In December last year, it raised funds through issue of equity to select investors and repaid a part of the debt for a better gearing. The current acquisition is hence unlikely to demand any fresh borrowings for Suzlon. An open offer for the minority shareholders of REpower may, however, require Suzlon to prove its capability to finance the same.

More Stories on : Stocks | Non-conventional Energy | Suzlon Energy Ltd

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