The stock market’s reaction to Suzlon Energy Ltd’s successful buyout of Repower Systems AG is starkly different from the way it greeted the firm’s first bid in February.
Back then, Suzlon shares dropped by 21% in the six trading sessions that followed the bid. The worry was that Suzlon’s bidding war with Areva SA (which first bid for Repower) would finally lead to an irrationally high bid. Areva’s first bid had valued Repower at $1.1 billion (Rs4,510 crore), and Suzlon’s last bid was 48% higher at $1.63 billion.
Now that the bidding war has stopped after two rounds of bids from both Areva and Suzlon, the markets are relieved. Suzlon shares rose 19% on news that its final bid of $1.63 billion was successful. At Rs1,376 per share, Suzlon now trades 10% higher than it did prior to its first bid. Thus addressing the market’s fears.
It’s important to note here that while the bidding war with Areva has stopped, it does not mean that Suzlon will be able to purchase all of Repower’s shares at its final bid price. According to Aditya Sanghi, country head, investment banking, at Yes Bank, Areva’s agreement with Suzlon gives it a put option for its 30.16% stake starting a year from now.
The valuation of these shares will be at fair market value, determined through an independent valuation.
Considering that Areva has agreed to back out of the bidding war, it wouldn’t be unreasonable to expect that its sale price would be much higher than what other shareholders have received. One area of relief for Suzlon is its agreement with Martifer SGPS, a Portugese company that owns a 23% stake in Repower. This agreement allows Suzlon to buy Martifer’s stake at a 6% discount to the final bid price.
However, the final cost of acquiring Repower will be known only when Areva exercises its put option any time after a year from now. Until then, shareholders seem to be living on the hope that the benefits of synergy will more than make up for the high cost Suzlon has paid.