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Last updated: April 22, 2013 5:41 pm
ABB, the Swiss engineering conglomerate, is to buy the US solar energy company Power-One for $1.03bn, in a bet that growing emerging market demand will offset the volatility of a sector in which western firms have recently struggled.
After struggling with losses, ABB’s rival Siemens signalled last October that it would sell its solar businesses, while Bosch, the privately owned German industrial conglomerate, said in March that it would also withdraw, citing fierce competition in a sector that has been plagued by a glut of capacity in Asia.
However, while acknowledging that the sector had been volatile, Joe Hogan, ABB’s chief executive, said he thought the market would reach an “inflection point” over the next few years as photovoltaic energy became competitive with energy generated from coal or gas.
ABB wanted to increase its footprint in the market before this inflection occurred, Mr Hogan added. ABB has sales of about $100m in the field, having started its own photovoltaic business four years ago, but the acquisition of Power-One, which had revenues of $1bn in 2012, should increase that figure roughly 10-fold.
Ulrich Spiesshofer, head of ABB’s discrete automation and motion division, into which Power-One will be integrated, added the companies that had suffered most from Asian overcapacity were those involved in the production of solar panels.
Power-One, by contrast, is strong in the production of solar inverters, the complicated “brain” that converts a solar panel’s DC-current into AC-current that can be fed into the power grid.
Under the terms of the deal, which will see ABB take on Power-One’s $266m in net cash, the Swiss group will pay Power-One’s shareholders $6.35 a share in cash, a 57 per cent premium to Friday’s undisturbed closing price.
Mark Fielding, an analyst at Citi, said the deal price was a “sensible valuation on historical earnings, [but] not so cheap on current earnings multiples”.
“A headline multiple of 8-9 times last year’s earnings before interest, tax, depreciation and amortisation does not look that high, and a 2012 price/earnings ratio of 18 times for a net cash business also appears acceptable,” he said.
“However, if you look at [expectations for] 2013 based on Bloomberg consensus then the EV/ebitda rises to 13 times and the price/earnings ratio to nearer 30 times, which both appear less attractive.”
The deal is structured as a merger and remains subject to approval by regulators and Power-One’s shareholders.
Shares in ABB were down 1.15 per cent at SFr19.70 in late afternoon trading in Zurich. Shares in Power-One were up 57 per cent at $6.35 in early trading in the US.
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