Suzlon sells Hansen stake as shifting economic tides prompt gearbox sale

BUSINESS: Indian wind turbine manufacturer Suzlon has sold a 35% stake in subsidiary Hansen, a Belgian gearbox manufacturer, for $370 million, reducing its ownership from 61% to 26%. Suzlon reportedly plans to sell its remaining stake. While its 26% holding remains larger than that of any other shareholders, no single shareholder now dominates Hansen. The next biggest shareholder is London-based investment management firm Ecofin, with 11.6%.

Suzlon's disposal of Hansen removes gearbox manufacturing from the company's control, weakening the vertical integration model that Suzlon appeared to envision. The company had committed to being a long-term financial investor in Hansen, as agreed with Ecofin, to whom Suzlon sold the 11.6% stake in January 2009.

But Sumant Sinha, Suzlon chief operating officer, said in December that it would try to sell its 26% stake as it completed refinancing of about $2.5 billion of debt.

The 35% stake sold by Suzlon was offered by underwriters Merrill Lynch and Morgan Stanley to their institutional clients at a small discount to the prevailing price.

When Suzlon acquired Hansen for EUR465 million in March 2006, chairman Tulsi Tanti called gearboxes the heart of the machine. The acquisition, according to one Suzlon spokesman, was intended mainly to expand the gearbox capability so the supply chain bottlenecks could be cleared in a fast-growing wind industry. The previous year, German turbine manufacturer Siemens had bought rival gearbox supplier Winergy.

Supply agreement

In 2006 Hansen and Suzlon entered into a five-year supply agreement and it is not clear what will happen to that now. In December 2007 Suzlon and Hansen signed an agreement guaranteeing Hansen a free hand in business decisions, allowing Hansen to continue supplying gearboxes to Suzlon rival Vestas.

Hansen was particularly attractive to Suzlon because of its dominant position in gearboxes for large turbines with a capacity of 1.5 MW or more, a segment where Hansen estimated its market share in 2006 at about 50%. Hansen's total 3.6 GW wind turbine gearbox manufacturing capacity at the time accounted for about 27% of the market.

Following its own public listing in September 2005, Suzlon acquired Hansen in 2006 for more than twice Hansen's 2005 sales of EUR213 million, which is high among corporate acquisitions.

To fund a quadrupling of annual production capacity to 14.3 GW by 2013, Hansen was listed on the London Stock Exchange in December 2007. It raised £318 million, valuing the company at more than £1.1 billion.

During the three and a half years that Suzlon controlled Hansen, the firm's production capacity doubled and is likely to double again by 2013. In June 2008, Hansen opened a facility in Lommel, Belgium, with annual production capacity of 6 GW, and is revving up production in India and China through facilities with annual capacities of 4.3 GW and 3.3 GW respectively.

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