Shares of Power-One (NASDAQ:PWER) rose up to 60% in Monday's trading session. The leading provider of renewable energy and power conversion and power management solutions, announced that it has agreed to sell itself to Suisse-based ABB Group (NYSE:ABB).
Power-One announced that it has agreed to sell itself to ABB for $6.35 per share in cash, in a $1 billion deal, creating a global leader in the attractive and "intelligent" part of the photovoltaic value chain.
Following the deal, Power-One's 3,300 employees have access to ABB's global Research & Development and sales capabilities. The deal will allow ABB to boost its presence in the solar PV industry which is expected to grow by more than 10% per annum through 2020.
CEO Joe Hogan commented on the deal, "Solar PV is becoming a major force reshaping the future energy mix because it is rapidly closing in on grid parity. Power-One is a well-managed company and is highly regarded as a technology innovator focusing on the most attractive and intelligent solar PV product. The combination of Power-One and ABB is fully in line with our 2015 strategy and would create a global player with the scale to compete successfully and create value for customers, employees and shareholders."
For the full year of 2012, Power-One generated annual revenues of $1.02 billion, up half a percent on the year before. Net income fell some 60% to $55.7 million. Excluding the net cash position of $266 million, the deal values the company's operating assets around $750 million.
This values operating assets of Power-One at 0.75 times annual revenues and 13-14 times annual earnings.
The deal is expected to close in the second half of 2013 and is subject to shareholder and regulatory approval. The deal has already been approved by the board of both companies.
ABB ended its full year of 2012 with $8.5 billion in cash, equivalents, marketable securities and short-term investments. The company has some $10.0 billion in short- and long-term debt outstanding, for a modest net cash position. As such, ABB has sufficient liquidity to acquire Power-One.
The company generated full-year revenues of $39.3 billion on which it net earned $2.8 billion. ABB is currently valued around $49 billion which values the firm at 1.25 times annual revenues and 17-18 times annual earnings.
ABB pays a quarterly dividend of $0.74 per share, for an annual dividend yield of 3.4%.
Some Historical Perspective
Shares of ABB have seen decent returns over the past decade. Trading as low as $3 back in 2003, the troubled conglomerate steadily boosted its operations as shares peaked at $33 back in 2008. Shares fell back to $10 later that year following the severe worldwide recession and have traded in a $15-$25 trading range ever since, currently exchanging hands at $21 per share.
Between 2009 and 2012, ABB increased its annual revenues by roughly a quarter to $39.4 billion. Net income stabilized to just under $3 billion.
Shareholders of ABB hardly react to the modest deal, sending shares one percent lower in the US trading session. The acquisition of Power-One seems favorable to ABB as it increases the firm's exposure to the growing solar PV markets.
Backing out the net cash position out of the $1.0 billion deal values Power-One around 0.7 times revenues and 13-14 times annual earnings. This represents a sizable discount compared to ABB's 1.2 times revenue multiple and 17-18 times earnings multiple.
As the deal adds just 2.5% in annual revenues and some 2% in annual net income, shareholders in ABB are not too excited. Overall, I think the deal makes perfect sense, despite the 60% premium, as it increases ABB's exposure to growth markets at fair valuation multiples.
While I applaud ABB's deal, the overall valuation of ABB is not appealing enough for me to pick up shares at these levels. For now, I remain on the sidelines.