LDK Solar: No Mercy Yet

In what was perceived to be a glimpse of hope last week, LDK Solar (NYSE: LDK) surged close to 15%, from $37.50 to $42 within a couple of minutes on heavy volume. Soon afterwards it was revealed that the source of this surge was rumors of a buyout at €55 from Siemens AG (NYSE: SI).

While the match-up doesn't seem too far fetched, considering Germany is a huge consumer of solar products and Siemens already has a strong position within the renewable energy sector, it remains to be only a rumor. The fact is that LDK Solar still has dark clouds looming overhead as a result of its inventory troubles.

Although the Siemens buyout remains a possibility, I can't understand why a large reputable company like Siemens would want to bail out a bruised and battered LDK. While I do not doubt LDK's capabilities, I don't see Siemens gambling on a company that has its own fair share of issues to iron out first.

Assuming LDK has reported false inventories, the deal wouldn't appear to be too attractive. LDK does not have any intellectual property or any manufacturing techniques Siemens couldn't replicate themselves, albeit with delays. After all, the wafers LDK manufactures are simply just thinly sliced low grade silicon ingots.

On the other hand, if things do turn out to be in LDK's favor and their financial controller's testimony of fraudulent inventory accounting is a hoax, €55 ($80.58) wouldn't seem too unreasonable a price, considering the company was just shy of that amount before this whole ordeal started.

Judging by yesterday's 10% downward movement while the remainder of the industry shines, it would seem that the street has dismissed this buyout rumor.

Coupled with the fact that earnings results have been delayed since November 2nd, shareholders shouldn't expect to see any movement upwards unless some closure comes about this ongoing inventory drag. Both significant contracts and buyout rumors have failed to support the stock price.

Full Disclosure: Author does not hold a position in any of the securities mentioned.

Comments

[Michael D]

The original articles said 55 DOLLARS (not euros) a share.

[Michael D]

The original articles said 55 DOLLARS (not euros) a share.

[alpha24seven]

Actually the original article said Euros -- and that equaled approx USD $80 PS which should have tipped off the outrageousness of the "rumor". Check that premium...