Pune: Facing the prospect of an escalating price battle in its quest to acquire a German competitor for Rs5,800 crore, Suzlon Energy Ltd chairman Tulsi R. Tanti has strongly defended the hefty premium that Suzlon and its bid partners are willing to pay for Repower Systems AG.
“At first glance our bid will look expensive but I am looking at the intangible benefits of this move, our future synergies and the huge business opportunities this company will give us,” Tanti said in a phone interview with Mint from Germany.
“We are on a global expansion project and have already established ourselves in the US, China and India,” Tanti says. “Europe constitutes 45% of the global market and we will save three-four years (by buying Repower.) We will be able to leverage the German company’s technology to establish ourselves faster in the market and get in more volumes quickly.”
Suzlon, the country’s biggest builder of wind turbines, on Friday made a €1.02 billion (Rs5,865 crore), or €126 (Rs7,245) a share, unsolicited bid for Repower. Suzlon’s bid is 20% more than the 5 February bid for 70% of Repower by French nuclear-reactor maker Areva SA. Areva already owns 30% of Repower, Germany’s third-largest maker of wind power equipment.
Suzlon’s bid, in turn, is being backed by Portugal’s Mota-Engil SA, whose Martifer unit owns 25.4% of Repower.
But Suzlon’s bid prompted a sharp spurt in Repower shares on Friday on the German stock market, where they surged €31.5 a share, or 27.7%, to €145 a share, some 15% more than Suzlon’s offer as investors expected Areva to now react.
It was unclear over the weekend as to what the French company, the world’s biggest manufacturer of atomic power stations, would do next. In an email on Friday, Areva said it was “the right partner” for Repower and supports the German company’s strategy and management.
Suzlon’s global chief executive, Per Hornung Pedersen, says the company has “done careful preparation before the bid and would like to see this through. There are very strong technological and market reasons why the two companies will be great together, but we obviously won’t make any move that will not offer value for the company and its shareholders.”
Suzlon is also eyeing Repower’s offshore wind turbine technology, which is expected to have a huge market by 2010. “This acquisition will allow us to commercialize and bring the technology to market faster,” said Tanti.
He maintains he is not in the midst of a bidding war and that it is “friendly bidding,” but insists that Areva “really has no synergy” with Repower. “We do have very strong synergies and we have made a higher bid only based on the intangible benefits that this company will give us. We have offered a high premium and we think it is the right and reasonable value because of the synergies... Will I look at making a higher bid? I will have to wait and watch, and don’t want to speculate on it at this moment,” Tanti adds.
Some analysts say the bids are already overpriced. “This entire market is in hype dimension,” said Matthias Schrade, an analyst at GSC Research in Dusseldorf. “One can’t rule out a higher bid, though the price is already above where it should be fundamentally.”
Companies that manufacture equipment for generating wind and solar power are benefiting from a global drive, especially in western countries, to reduce reliance on petroleum after oil prices doubled in three years.
Suzlon has seen its own shares surge in recent months and that has made Tanti India’s eighth-richest person in 2006, with a net worth of $5.9 billion, according to Forbes Asia magazine. Suzlon’s shares fell Friday to Rs1,245.15, down 1.04% on the Bombay Stock Exchange.
Suzlon’s executives brush off the stock market reaction. “Repower is not a very profitable company,” he explains. “Its growth is hampered despite a solid technology foundation because it does not have access to funds and a good supply chain, both of which we have. With our financial muscle and our established supply chain Repower can increase its volumes and grow faster and with better margins.”
Repower, Germany’s third-largest maker of wind-power equipment behind Vestas Wind Systems A/S and Enercon, posted a nine-month profit of €1 million compared with a year-earlier loss of €8.3 million on rising wind power demand.
The German company’s strong technology base and its large pool of engineering and management talent is also a key attraction for Suzlon.
“If the deal comes through, we will integrate its knowledge of product development and R&D base with our strong R&D, especially in component manufacturing so that we have the very best knowledge at our disposal.”
“Germans make the best wind turbines in the world,” says Tanti. “Even Suzlon’s turbines were initially designed by Germans. If I can access a German company’s brand name and good will, there is no reason why I should not make a go for it.”
Gautam Charkavorthy and Thom Rose of Bloomberg contributed to this story.