News: Suzlon tops Areva, bids $1.33 b for Repower

(DNA 10/02/2007) Mumbai - Less than ten days after Ratan Tata won the race for UK's Corus Group Plc with a $12 billion plus bid, India's eighth-richest person of 2006, Tulsi Tanti - Forbes magazine estimated his wealth at $5.9 billion - has entered what could potentially be another international bidding war involving an Indian entity. On Friday, his company Suzlon Energy, India's largest maker of wind turbines, made a €1.02 billion ($1.33 billion) or €126 per share bid for its stuttering German competitor, REpower Systems AG. In doing so, the Pune-based firm has outbid the world's No. 1 nuclear reactor manufacturer, France-based Areva, which had offered €105 a REpower share on February 5. Suzlon has made the bid in partnership with Martifer, a company belonging to Portugal-based builder Mota-Engil SGPS SA, which already owns a quarter of REpower. This is where things get intriguing. In a conference call on Friday evening, Tanti said Suzlon has an option to buy out its partner later. A couple of hours later, Eduardo Rocha, chief financial officer of Mota-Engil, told Bloomberg that his company, too, has the option to buy out Suzlon. The Oporto, Portugal-based construction group has "significant industrial plans" for Repower, Rocha said. Tanti said any deal to buy REpower would take "a couple of months". Shares of REpower surged as much 25% to €142 at 9 p.m. (IST), a 52-week high, suggesting investors suspect that French state-owned Areva may sweeten its bid. That's already €17 more than what Suzlon's offering. "This entire market is in hype dimension," said Matthias Schrade, an analyst at GSC Research in Dusseldorf who recommends selling Repower stock. "One can't rule out a higher bid, though the price is already above where it should be fundamentally," he told Bloomberg. Tanti, however, did not comment on increasing the bid price at the conference call. But U P Bhat of Canbank Mutual Fund told Bloomberg that Suzlon would have factored in the possibility of a counter bid. "They will be able to sustain further counter-bidding, if any, with the backing of banks." ABN Amro Holding NV and Yes Bank Ltd are helping Tanti raise funds for the bid, which would be financed through long-term and short-term debt and from Suzlon's own resources. Suzlon's offer doesn't require any minimum percentage of the German company's shares, whereas the Areva approach depends on it gaining a stake of more than 50%. This bidding structure favours Suzlon more than Areva, analysts said. Why does Tanti want REpower? Because, he says, he wants a share of the European market where REpower is strong. It also affords Suzlon very high-end R&D capabilities and an integrated supply chain. Canara Mutual's Bhat said the approach from Suzlon "makes sense" because a combination of the two wind-turbine makers would cut costs. Suzlon's approach coincides with a global surge in wind-power projects as governments seek to cut carbon emissions and reduce dependence on oil. In India, REpower has an alliance with the Essar Group. Tanti said if he succeeds, all existing tie-ups including in China and US, will continue. "For REpower, Suzlon's financial strength can be of great help," said analysts. REpower's annual sales was around €450 million, with an Ebidta margin of 8% as of December 31, 2006. "It can be an €850 million company by 2008," Tanti said. Suzlon itself has been growing at 100% for more than 3-4 years. "That's the kind of financial tailwind REpower can do with," analysts said.