Tulsi Tanti, promoter of Suzlon Energy Ltd, pulled off a financial coup of sorts by finally acquiring control of German wind turbine maker Repower Systems AG by buying just 7.84% stake in the firm.
The deal, announced on Thursday and part of the growing success of Indian companies in pulling off audacious deals, values Repower at €1.35 billion (Rs7,425 crore) and ensures Suzlon an assured market for its output of wind turbine components right from rotor blades to gearboxes.
Suzlon shares surged 19%, or Rs219.55, to Rs1,378.45 a share on the Bombay Stock Exchange.
Suzlon Energy said it reached an agreement with rival bidder Areva SA, which owns 30% of the German target, under which the French company will become a preferred global supplier. In return, it dropped its hunt for Repower, ending an escalating, five-month bidding battle between the two. Areva is one of the world’s largest manufacturers of nuclear reactors, and transmission and distribution equipment.
“We have a voting pool agreement with Areva and Martifer. The agreement binds them to vote for us,” says Aditya Sanghi, country head for investment banking for Yes Bank Ltd, which advised Suzlon on the takeover.
Suzlon has so far paid a mere €100 million for its stake. The immediate bill is likely to increase by another €100-150 million as more shares could be tendered to Suzlon by large funds such as Blackrock group and Fidelity on Friday, the last day of Suzlon’s open offer for Repower shareholders to turn in their shares for €150 a share. That would effectively give Suzlon some 75% control of Repower’s shares for a total purchase cost of about €250 million. “The structure of agreement gives us majority voting rights while deferring cash flow,” Tanti said.
“We are expecting another 10-15% shares to be tendered when the open offer closes tonight,” said Kirti Vagadia, head of corporate finance at Suzlon.
Suzlon already has a binding agreement with Martifer, a unit of Mota-Engil SGPS SA, for its 23.08% stake in Repower, which ensures that Martifer will vote its shareholding in favour of Suzlon.
“Over the next one week, we will know how many shareholders of Repower have finally tendered (their shares) into our offer,” said Tanti, chairman and managing director of Suzlon. He holds more than 69% stake in the company.
Areva has the option to sell its stake in Repower to Suzlon after one year at market price, said Tanti.
Suzlon has gained effective control more than 61.09% of the votes in Repower, allowing it to go ahead with integrating the company into its global operations. While the arrangement makes the Suzlon group the world’s fourth-largest maker of wind turbines, it remains to be seen whether Suzlon will be able to consolidate the financial results of Repower in its profit and loss account.
“Principally, one can consolidate when the holding crosses 51%. I will be interested in consolidation, but it’s left to our auditors to take a view,” says Kirti.
Repower shares, which had been trading above the open offer price of €150 per share throughout the week on the anticipation of a higher counter bid by Areva, fell to €149.85, down 10.4% on Thursday in Germany. On Friday, too, the shares were little changed, trading at €149.48 per share.
Areva will become Suzlon’s preferred supplier of transmission and distribution equipment worldwide in return for its cooperation. Suzlon will supply Repower the components for assembling wind turbines and erect the turbines. But it will source the transmission lines and equipment required to get the power to the nearest electricity grid location from Areva, in preference to other suppliers.
Suzlon has a challenging assignment ahead as Repower saw its net profit dip 98.13% to €15,000 for the quarter ending 31 March despite a 41.3% growth in the company’s revenue to €125.4 million.
The company also managed to sell only three units of its unique 5MW wind turbines—the world’s largest commercially proven ones—in the first quarter.
Gautam Chakravorthy of Bloomberg contributed to this story.