Suzlon pays up, secures Martifer REpower stake

German wind turbine maker REpower Systems AG is just a step away from becoming a Suzlon group company.

Pune-based Suzlon Energy, India’s biggest and the world’s fifth-largest manufacturer of wind turbines, has made the final payment due to Martifer Group of Portugal for acquisition of its stake in REpower.

It now holds 90.72% of shares and voting rights in REpower Systems.

Suzlon had launched its takeover bid for REpower in February 2007 and in May that year approached both Areva and Martifer for acquiring their respective stakes in REpower. Areva’s shares were transferred by May 2008, but not Martifer’s. Then, in December 2008, Suzlon and Martifer agreed on a revised payment schedule under which the former would pay €65 million in December, 2008, €30 million in April, 2009, and a final tranche of €175 million in two equal parts by June 5, thereby completely buying Martifer’s 22.4% stake in REpower.

The first part of the final tranche, of €87.6 million, was paid on May 29.

The final part, also of €87.6 million, has been paid on June 5, the company said in a notice to the Bombay Stock Exchange.

The payment has been funded through debt, NewsWire18 said.

It said the company has tied up Rs 500-600 crore of debt for the purpose.

Under German laws, Suzlon will not immediately have a say in the management of REpower despite having majority stake in the company. This is aimed at protecting the interests of minority shareholders.

Suzlon will now have to sign what is known as a domination agreement, which will offer both the companies greater flexibility in doing business.

“Once this agreement is signed, REpower will become a part of the Suzlon group and it will have complete control of the management,” an industry source said.

Analysts Abhishek Puri and Kashish Tandon of brokerage firm JM Finanacial said in a June 6 report on the company that it normally takes 6-12 months as lawful procedure, post which the minority shareholders will have two choices - a) if they want to sell, then Suzlon will have to buy at the price fixed by the German market regulators; and b) choice of a fixed dividend decided by the court, irrespective of company’s financial performance.

“Therefore, we expect the two companies will remain independent and Suzlon will not gain access to REpower’s technology for at least next one year,” the analysts said.

The source agreed that the deal could take time, may be a year. All the same, he said, both the companies will gain by getting access to an integrated range of wind turbines and to each other’s customers across the world, and it will also boost Suzlon’s robust supply chain linkages.

The acquisition puts to rest questions on Suzlon’s ability to conclude a big-ticket buyout such as this in times of global financial crunch and makes it one of the world’s most integrated wind turbine players. It also gives the company access to newer geographies and expertise of terrains it was not present in earlier.

According to the JM Financial analysts, together with Hansen Transmission and REpower Systems, Suzlon will now control a large part of the supply chain along with option to move up the technology ladder with potential strong R&D support.

Hansen Transmission is a Belgium-based gear box manufacturer, which was acquired by Suzlon in May 2006 for €465 million.

The synergies with REpower are many, say analysts. Suzlon Energy offers wind turbines in the range of 600 kilowatt to 2.1 megawatt (mw) and is not present in the high-end category. REpower, on the other hand, manufactures wind turbines between 2 mw and 6 mw.

The source said 6 mw is the largest size of wind turbines manufactured anywhere in the world. “Besides, Suzlon is a strong backward integrated player as well, and therefore the value chain is well secured.”

Analysts say Suzlon has now become the second-most integrated company in the global industry, after Gamesa. It has access to the complete value chain and in fact controls large part of supply chain for other wind turbine generator suppliers too —- for example, Hansen is the sole supplier for Vestas’ V90 3 MW turbines.

All this, together with a revival of demand for wind turbines in the European and the Asian markets, could well be tailwind for Suzlon this year.