France's Total to Take Controlling Interest in SunPower

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 |  Includes: SPWR, TOT
by: Greentech Media

By Michael Kanellos

Total to Take Controlling Interest in SunPower

Total (NYSE:TOT), known primarily for its oil and gas operations, announced a plan to buy a controlling interest in SunPower (SPWRA), the maker of high efficiency solar modules.

Under the terms of the deal, Total will, through a subsidiary, launch a tender offer to buy up to 60 percent of SunPower's Class A shares and 60 percent of the Class B shares for $23.25 a share. It represents a 46 percent premium over the current price of SunPower's A shares as of April 27 and a 49 percent premium over the B shares. Total will also issue $1 billion in credit to SunPower.

If all goes well and the transaction goes through, SunPower will continue to operate under its current management.

In all, it will cost Total around $2.3 billion.

The deal likely answers one of the most-asked questions in the solar industry: what happens to SunPower? The company produces some of the most efficient solar panels on the market. It has also historically been one of the most nimble companies when it comes to tweaking its strategy to capitalize on changing circumstances. SunPower, along with First Solar, was one of the first to aggressively pursue utility-scale projects and to develop its own solar parks.

Recently, when it found itself approaching the efficiency wall, SunPower launched an effort to develop an inexpensive solar concentrator. The company's 2010 revenue came to $2.22 billion, a 46 percent increase over 2009, with a gross margin of 23 percent, and 2011 revenue is expected to hit $2.8 billion to $2.95 billion with gross margins shrinking a bit to 19 to 21 percent.

On the other hand, SunPower has been attacked from below by Asian competitors that have steadily cut the price of solar modules. Price erosion has made SunPower one of the more prominent acquisition targets in the green industry. (At the same time, its ability to adopt new strategies has also made it one of green tech's prime acquirers.)

The deal is likely more about project development and solar power plants than solar panels, said Shyam Mehta, the senior solar analyst at GTM Research.

"They have the second best -- if not the best -- track record in the industry" for project development," he said. The $1 billion line of credit, if exploited for power plants, could give SunPower a huge advantage over competitors like First Solar. The cost of capital is a substantial consideration in these projects and Total can get access to large amounts of capital at lower rates than standalone solar companies.

Having Total as a potential financier will also potentially help SunPower circumvent the often arduous search for money and partners on particular projects. NRG Solar, for instance, and the Department of Energy are crucial allies in the California Solar Ranch project.

The solar panel part of the deal, however, can't be overlooked. "SunPower is one of the few solar companies that is actually a technology play and not a commodity one," Mehta added.

Total actually already has a moderately sized solar business, including a cell company (Photovoltech) and a module company called Tenesol with a cumulative factory capacity of 170 megawatts. By contrast, SunPower has 580 megawatts of capacity right now and will expand to 2 gigawatts by 2014. Total has also invested in thermal companies and startups like Konarka.

Total also represents one of the more unusual and unexpected trends in green technology: the rise of France.

Schneider Electric has bought five companies in recent months to expand its portfolio in building management and power delivery. Saint-Gobain, mirror maker to Louis XIV, invested $80 million into smart window maker Sage Electrochromics. Areva, the French nuclear giant, bought solar thermal company Ausra last year. Veolia, also from France, has begun to invest in and partner with water startups.

We picked France as one of our Green Giants this year. Many scoffed. We will now take a bow. Thank you.

Why is this occurring? Europeans don’t specialize in startups. Instead, Europe tends to cultivate staid conglomerates with large research labs and employees that stay at the same company for decades -- in other words, the kind of places where green ideas can get the room and time they need to develop.