SunPower ( SPWRA ) recently announced that the Total Group would soon be launching a friendly tender offer to buy 60% of the solar industry giant's outstanding class A and class B equity shares. SunPower manufactures and distributes silicon-based solar cells and also produces solar power products for installation on residential and commercial units. The company's primary competitors include First Solar ( FSLR ), SuntechPower ( STP ), and Yingli Green Energy Holding Com ( YGE ).
Total's offer of $23.25 for each SunPower share sparked a surge in SunPower's stock from below $16 at the end of last week to its current price of around $22. We continue to hold our price estimate of $16.22 for SunPower's stock .
The Total Group, and Their Rationale Behind the Deal
France-based Total S.A. is one of the world's six oil & gas 'supermajors' - the others being Exxon Mobil ( XOM ), Royal Dutch Shell (NYSE:RDS.B), BP (BP), Chevron (CVX) and ConocoPhillips (COP). The group has activities in more than 130 countries.
The energy producer and provider has clearly been exploring alternates to oil and natural gas in order to diversify its supply of energy, with a focus on solar energy and biofuels. The company started investing in solar energy as early as 1983 through joint venture with Tenesol and Photovoltech, and has significant expertise across the photovoltaic solar power chain.
It is interesting to see that Total's offer for SunPower's stock was at a premium of almost 50% to the price at the time of the announcement. While Total's offer values SunPower's equity at nearly $2.3 billion, we believe the substantial premium is aimed at preventing a bidding war among industry giants.
What it Means to SunPower
SunPower's most direct gain from the deal is the $1 billion credit support it will receive from Total. The credit which is available to SunPower's global utility power plant and large commercial installation businesses would allow them to accelerate their business development, and expand their manufacturing capacity with lower cash requirements.
We capture the effects of these expenses on SunPower's value through our forecast of other direct expenses of the installed systems division, represented as a percentage of revenue.
SunPower would also gain access to Total's extensive supply network around the globe, and would obtain research and development investments that can be directed at further reducing the company's costs.