David and Goliath battle in full swing -- Indian wind firm Suzlon outbids nuclear Areva for Repower

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French state-owned nuclear giant Areva's bid of EUR 105/share for small German wind turbine builder Repower Systems in late January (Windpower Monthly, February 2006) looked like a smooth ride until one of Repower's competitors, India's Suzlon Energy, joined forces with Portuguese company Martifer with a competing bid of EUR 126/share early last month. Both Areva and Martifer are major shareholders in Repower with 29.9% and 25.4% respectively. Martifer is part of the Mota-Engil group, Portugal's largest construction company.

Areva published its offer document on February 5. Suzlon Energy and Martifer's bidding company, BidCo, in which they hold 75% and 25% respectively, lodged its offer document with Germany's financial supervisory authority, the Bundesanstalt für Finanzdienstleistungsaufsicht, known as Bafin, in mid-February for authorisation. On the last day of February, it was able to deliver it to Repower and a meeting with the heads of both companies was scheduled for March 2. The deadline for counter offers to Areva's bid is March 7.

Suzlon will finance Bidco's offer and Martifer will support it. That means that if the bid is successful, Martifer will sell its shares to Suzlon, says Tasso Enzweiler of Hering Schuppener Consulting. Other details of the two companies' agreement are contained in the offer document. These could include arrangements for Martifer to contribute to future Suzlon and Repower wind projects. Martifer currently builds wind turbine towers and has plans for strong growth, says Enzweiler.

Repower surprised

"We were surprised by both bids," says Repower Systems' Thomas Schnorrenberg. "We expected a bid from Areva at some point in the future but didn't know when -- and we didn't have Suzlon on the radar at all. But we are completely open in both directions, both bidders have advantages and disadvantages," he says. "Press reports have given the impression that Repower favours Areva because we have made a statement relating to the Areva offer. However we can't make a statement on the Suzlon offer until the offer document has been published," Schnorrenberg explained in late February.

A successful bid by Areva for Repower would mirror many of the aspects of the takeover of Danish wind turbine company Bonus by Siemens. Repower would benefit from Areva's financial clout in a number of ways, including being able to provide the delivery guarantees necessary for new orders. Areva would have a wind turbine builder to supply the French and other markets -- and synergies could be used in areas such as network connection. Further, Areva could profit from Repower's edge in the offshore wind sector, giving the power company easier access to transmission cable projects for the big projects of the future.

Suzlon, on the other hand, as a vertically integrated turbine manufacturer building blades and gearboxes, would give Repower secure access to cheaper components. The market positions of the two companies is complementary. Where Repower is strong, such as in Germany, the UK and France, Suzlon has yet to make an impact. The merger of the two technology lines would also create little redundancy since the respective companies' turbines were also developed for different market conditions.

Suzlon's turnover in 2006 reached EUR 713 million, not including its wind turbine gearbox manufacturing business, Hansen, which it bought last year. Repower is projecting that its 2006 turnover of EUR 450 million will rise to EUR 650 million in 2007. Combined, the two companies would form a concern with sales approaching EUR 2 billion in 2007 moving them up the rankings of pure-play wind turbine companies behind Vestas and in a league with Enercon and Gamesa.

Martifer's role

A successful Suzlon/Martifer bid would be advantageous to Martifer. Sale of its shares to Areva would bring a one-off return, but sale to Suzlon could be linked to future construction contracts with both Repower and Suzlon projects -- and give it access to Repower and Suzlon turbines for the Portuguese market. Martifer and Repower are currently involved in a consortium bidding for 500 MW of government wind power concessions and have equal shares in Repower Portugal, a joint venture set up to construct and market Repower megawatt turbines.

Should Repower be bought by a third party, Martifer has rights over the half of Repower Portugal it does not already own. The transfer of technology associated with this option is restricted to Repower's 1.5 MW and 2 MW turbines and the Portuguese market. But should the Suzlon/Martifer bid succeed, the potential of Repower Portugal would appear to be unrestricted.

Suzlon's vision

A third possibility is that neither Areva nor Suzlon succeed in acquiring more than 50% of Repower from other shareholders, leaving both companies still as major owners. This is certainly not Suzlon's vision. Suzlon's Tulsi Tanti says a Suzlon-Repower concern could obtain "global market leadership in the wind industry, with best-in-class products, outstanding research and development capability and an integrated supply chain."

The funding would include $300-400 million from internal accruals and the balance of $900 million from loans (ABN Ambro has formed a consortium of 20 banks for this). "We do not need to dilute equity," says the company's Vivek Kher. Repower will draw from the strong presence of Suzlon in India and the US and its low cost supply chain, adds Suzlon. "We also have the financial strength as the company grows at 20% with 100% margins," says Kher.

Like Areva, Suzlon says its intention is to retain the Repower brand. The German company would keep its identity, management and present assembly factories under either company. Suzlon and Repower, however, would collaborate on technology research and development.

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