Turbine Manufacturer Suzlon's Stake in REpower Rises to Nearly 90%

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Researched by Industrial Info Resources (Sugar Land, Texas)--Suzlon Energy (BOM:532667) (Pune, Maharashtra), the world's fifth largest manufacturer of wind turbines, is increasing its stake in its subsidiary, REpower Systems AG (FRA:RPW) (Hamburg, Germany), which manufactures some of the largest wind turbines in the world, to nearly 90% eight months ahead of schedule. Suzlon is acquiring the 22.48% stake in REpower owned by Martifer SGPS SA (ELI:MAR) (Oliveira de Frades, Portugal), a manufacturer of steel structures used in wind generation equipment, for about 270 million euros ($383 million) at 131 euros ($186) per share. The deal is scheduled to be complete by December 15, 2008.

In February 2007, Suzlon initially offered to acquire Martifer's stake in REpower. In May, Suzlon outbid Areva (EPA:CEI) (Paris) and acquired a controlling stake in REpower, hoping to harness the latter's technology to enhance its product portfolio. Suzlon picked up a 33.85% stake and 87.1% voting power in the company. It entered into a deal with Martifer, which was structured such that Suzlon could pick up Martifer's stake of 23% in REpower within a period of two years at a predetermined price of 270 million euros ($383 million).

However, Suzlon could not gain access to REpower's technology blueprints because of a German corporate law that required Suzlon to buy out minority stakeholders in REpower before Suzlon could lay claim to the latter's designs. In June of this year, Suzlon picked up a 30% stake held in REpower by Areva for more than 350 million euros ($500 million). This consolidated Suzlon's total holding in REpower to nearly 66%. With the latest acquisition of Martifer's stake, Suzlon now owns approximately 90% of REpower.

Suzlon is working on integrating REpower's expertise in technology and design with its own cost competitiveness. Suzlon, which commands 10.5% of the global wind industry and 50% of the Indian industry, now has an established presence across the entire value chain as an integrated provider. The acquisition of REpower, which posted an increase in sales and profits to date this year compared with the last fiscal year, is expected to boost Suzlon's bottom line at a time when the company is under close scrutiny owing to the failing quality of its products. Earlier this year, Suzlon had to undertake a $25 million blade-retrofitting program to structurally reinforce 1,251 blades and resolve the issue of blade cracking that took place during the operations of its S88 turbines in the U.S.

In August of this year, some of the firm's largest domestic buyers complained of poor performance of its products. Customers such as Essel Mining and Industries Limited (Kolkata, West Bengal), Madras Cement Limited (BOM:500260) (Chennai, Tamil Nadu), MSPL Limited (Hospet, Karnataka), and K.S. Oils Limited (BOM:526209) (Morena, Madhya Pradesh) complained of the turbines' failure to generate the expected amount of electricity and inability to handle excessive vibrations at high wind speeds, causing them power revenue losses of millions of dollars. As of July 2008, Suzlon's order backlog from the U.S. market was 23% less compared with last year. The firm's order backlog from the Indian market was 15% less than last year. Suzlon has an annual manufacturing capacity of 2,700 megawatts (MW) and is aggressively pursuing a target capacity of 5,700 MW by 2008-09. The firm's Global Management Center in Amsterdam has executed projects in India, the U.S., Australia, Europe and Africa.

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