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Suzlon's proposal to increase stake in REpower from 95% to 100% could
look challenging if seen from the aspect of weak financials - which led to
debt restructuring, FCCB restructuring, continued quarterly loss for the last
seven quarters and importantly rising stock price of REpower. With the acquisition
largely funded out of FCCB, the challenge for Suzlon would be an
effort to reduce RM/sales by ~100 bps at REpower post acquisition - which
could fund the entire transaction. At the current price, reiterate Hold with a
TP of INR 51/sh.
Suzlon initiates 'squeeze-out procedure' for minority holders of REpower
Further to recent acquisition of shares in REpower, the company has sent
a notice to the management board of REpower to initiate the 'squeeze-out'
procedure on minority shareholders. Under the German Stock Corporation
Act, a shareholding of 95.0% in a German stock corporation enables the
majority shareholder to initiate squeeze-out proceedings in respect of minority
shareholders, where they are forced to surrender their equity rights
at the court approved valuation. At the current price of REpower, we estimate
the cost of acquisition for 9% at INR 7.5bn. Deal is to be financed
partly through promoter loans and recent FCCB issue (USD 150mn).
Long term positive for Suzlon, however near-term pressure on cash
flows
As per the company, the squeeze-out procedure may take up to one year.
We believe this is a long-term positive for the company, as now it can benefit
from synergies. So far, it was prevented by German laws to sign any
'domino agreements' with REpower without permission of minority shareholders.
However, with the 100% stake, the company can leverage
REpower's expertise in 'off-shore' technology in Suzlon, while providing
Suzlon's low-cost vendor base to REpower. In the near-term , however, the
cash outgo for the transaction is likely to stretch the cash flows of the company,
and increase the financial leverage (Net debt: equity of ~ 1.62x).
(Please refer to our note titled ' Suzlon - Slowly emerging out of the woods'
dated 22 Feb, 2011). We maintain Hold as we believe the likely demand
recovery, particularly in the domestic markets, should help the company.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Suzlon's proposal to increase stake in REpower from 95% to 100% could
look challenging if seen from the aspect of weak financials - which led to
debt restructuring, FCCB restructuring, continued quarterly loss for the last
seven quarters and importantly rising stock price of REpower. With the acquisition
largely funded out of FCCB, the challenge for Suzlon would be an
effort to reduce RM/sales by ~100 bps at REpower post acquisition - which
could fund the entire transaction. At the current price, reiterate Hold with a
TP of INR 51/sh.
Suzlon initiates 'squeeze-out procedure' for minority holders of REpower
Further to recent acquisition of shares in REpower, the company has sent
a notice to the management board of REpower to initiate the 'squeeze-out'
procedure on minority shareholders. Under the German Stock Corporation
Act, a shareholding of 95.0% in a German stock corporation enables the
majority shareholder to initiate squeeze-out proceedings in respect of minority
shareholders, where they are forced to surrender their equity rights
at the court approved valuation. At the current price of REpower, we estimate
the cost of acquisition for 9% at INR 7.5bn. Deal is to be financed
partly through promoter loans and recent FCCB issue (USD 150mn).
Long term positive for Suzlon, however near-term pressure on cash
flows
As per the company, the squeeze-out procedure may take up to one year.
We believe this is a long-term positive for the company, as now it can benefit
from synergies. So far, it was prevented by German laws to sign any
'domino agreements' with REpower without permission of minority shareholders.
However, with the 100% stake, the company can leverage
REpower's expertise in 'off-shore' technology in Suzlon, while providing
Suzlon's low-cost vendor base to REpower. In the near-term , however, the
cash outgo for the transaction is likely to stretch the cash flows of the company,
and increase the financial leverage (Net debt: equity of ~ 1.62x).
(Please refer to our note titled ' Suzlon - Slowly emerging out of the woods'
dated 22 Feb, 2011). We maintain Hold as we believe the likely demand
recovery, particularly in the domestic markets, should help the company.
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