ABB Group (NYSE:ABB) is the world's leading power and automation technology company, operating in more than 100 countries around the globe. The automation technology group, ABB, is acquiring renewable energy firm Power-One Inc. (NASDAQ:PWER) for $1 billion to become the market leader in the solar inverter industry. Solar inverters convert direct current (DC) created by solar panels to alternating current (AC) for use in electric grids.
ABB announced that it is paying $6.35 per share in cash, which it will finance with its own funds. The company said that by acquiring Power-One, it will create a leading position in the most attractive and "intelligent" part of the solar inverter value chain. On the other hand, the deal will give PWER access to ABB's research and development as well as its global services and sales expertise, which will further enhance its products and services. This deal will also help ABB to achieve higher growth in the inverter and power businesses.
ABB's CEO, Joe Hogan, said that solar has become a major source of energy that is reshaping the future's energy mix. Power-One is a well-managed company and a technology innovator aiming for the most attractive and intelligent solar PV product. The combination of Power-One and ABB would create a global player with the scale to compete successfully and create value for customers, employees and shareholders.
The solar industry is currently in a growing phase, with an annual growth of more than 20 percent. Many leading economies are shifting their energy mix to solar-based power generation due to increasing global warming and higher conversion rates, meaning that panels have more efficient cells. Higher demand for clean and renewable energy is another reason behind its success, because the electricity produced using solar panels displaces CO2. Germany is the leading solar power producer, with a capacity of more than 32.3 GW, as of December 2012. Germany has a goal of generating 35 percent of its electricity from renewable sources by 2020, and 100 percent by 2050.
According to a new report published by HIS, the global solar PV inverter market grew 5 percent to a record $7.1 billion in 2012. The IHS predicted that the demand for solar inverters in Asia will increase by more than 60 percent in 2013. On the other hand, ABB has projected that the solar inverter market will grow by more than 10 percent per year until 2021, due to rising energy demand, especially in emerging markets, where the costs are declining and electricity prices are rising.
Power-One is the leading provider of power conversion and power management solutions. It is currently the world's second-largest maker of inverters for the solar power industry. In January 2013, the company posted a 32 percent year-on-year increase in inverters shipped in the fourth quarter, 628 megawatts (MW) and 3.6 gigawatts (GW) in 2012. As of December 2012, the company has cash and short-term investments of $266 million. The company generated $91 million in operating cash flow during the year and spent $31 million in capital expenditures.
As mentioned above, this acquisition will make it a market leader of the growing solar inverter market and will strengthen its product portfolio. This deal will not only help ABB to realize diversification benefits, but will also create synergy benefits. After the acquisition, Power-One will be able to expand its business operations across the globe using ABB's strong global presence and efficient distribution networks. Another positive feature of this deal is that the timing of ABB, to increase its presence in the solar inverter market, is also perfect as the solar energy and inverter demand is expected to be very high in the future. Through its diversification and synergy benefits, the company will be able to cut costs and generate more cash flow and value for shareholders. Those investors who want to make bets on the engineering industry should buy this stock.
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