The Hindu Business Line : Favourable tallwinds

Suzlon Energy's consolidation of stake in wind turbine manufacturer REpower of Germany has put to rest uncertainties over whether it will hold on to its position as a key stake holder in REpower. Suzlon last week announced that it has acquired Areva's entire stake of 30 per cent in REpower for an undisclosed sum. The REpower stock has been on the decline over the past 20 days, indicating that the deal may have been made much below the market price. Suzlon's stake in REpower will now climb to 66 per cent of share capital and 89 per cent of the company's voting rights (given that Suzlon also owns voting rights of the other key stakeholder, Martifer's, voting rights). Now that it is reasonably clear that Suzlon is looking at a long-term relationship with REpower, the key issue would be whether Suzlon is able to tap REpower for its high-end technology relating to wind turbines. Suzlon has stated that the acquisition of REpower was a strategic decision to accelerate its entry into the European market as well as expand the group's product portfolio to include REpower's offshore wind turbines. While this target could well be achieved, the key benefit for Suzlon could be in a technology transfer, given the recent technological constraints it has faced in supply to overseas markets. However, REpower is under no compulsion to go for a technology transfer under German law, unless Suzlon opts for a 'domination agreement' (which requires a 75 per cent shareholder approval). This would, however, require a tender offer to minority shareholders and Suzlon will have to demonstrate its capability to finance the same. Suzlon may choose to take the route once the call option on Martifer takes effect in 2009 and it raises sufficient funds. Until then, any small stake sale in REpower to unlock value for Suzlon's shareholders cannot be ruled out, given that the company is strongly placed on voting rights.