Not yet into the clear

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The new Vestas has made it out of the delivery ward. Competition authority approvals have been received and with them the fear of a drawn out fight with the authorities -- and the prospects of forced disposals of assets to reduce market share -- has receded. Vestas' turbine making competitors have also essentially waved through the deal: the spectre of intervening, unsolicited bids for either company has not materialised. Even the arbitrageurs have not had too much to do, as NEG Micon's share price has closely and consistently tracked that of Vestas since the deal was announced

The deal is without question is a good one for old NEG Micon shareholders. They have received an attractive takeover premium and even the old Vestas, before any of the promised strengthening of the capital base, offered greater corporate stability than NEG Micon did.

But, out of the delivery room does not mean into the clear. That's particularly true for old Vestas shareholders. Management must now make the merger work. It must achieve at least all of the anticipated cost savings in order for the deal not to be one that dilutes earnings for Vestas shareholders -- this will remain a key performance benchmark for the next 24 months.

Even more importantly, management must recapitalise the company. Creditworthiness is fast becoming a key parameter for sorting the chaff from the wheat in the turbine supply world. Strong financials sell wind turbines. This is because customers must believe the companies will be there to service machines and live up to warranty agreements. The promised EUR 270 million of new equity issuance within 12 months of merger completion is essential. Until then, final judgement on the creation of new Vestas will have to be withheld.

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