Contemplating A Vestas Marriage: Money, Strategy And Legal Loopholes


Contemplating A Vestas Marriage: Money, Strategy And Legal Loopholes Embattled wind turbine maker Vestas has been the subject of numerous takeover rumors over the past few years and has been suspected as a takeover target of companies ranging from Chinese manufacturers – such as Ming Yang, Sinovel and Goldwind – to wind turbine suppliers, such as GE and Alstom.

With each new name or strategic partner rumored, Vestas turned away such speculation without comment. This week, however, by issuing a news release, Vestas gave credibility to the newest name to emerge as a potential partner: Mitsubishi Heavy Industries (MHI).

In the announcement, Vestas stated that it was in strategic-cooperation discussions with MHI.

‘If the dialogue results in an agreement, Vestas will make a company announcement on the issue immediately thereafter,’ the company added.

The MHI conglomerate includes Newport Beach, Calif.-based Mitsubishi Power Systems Americas (MPSA), which manufactures 1 MW and 2.4 MW wind turbines.

Despite what is expected to be a record year for turbine installations in the U.S., orders for 2013 have virtually stopped as the wind industry awaits a decision on the extension of the production tax credit (PTC).

Concern over a PTC extension has hit Vestas hard, particularly at its U.S. factories. In January, the company announced it would eliminate 2,335 positions by the end of the year. And, in releasing its most recent financial results, Vestas indicated it would lay off 1,400 more employees than it had originally anticipated.

Mutual benefits
Brian Redmond, managing director at Paragon Energy Holdings, is not surprised by Vestas' strategic-partnership talks. An expected slowdown in U.S. turbine orders is leading to capacity consolidation throughout the wind industry, he says.

Meanwhile, Dan Shreve, director and partner at MAKE Consulting, speculates that both companies could benefit from synergies in the offshore wind space.

‘MHI brings the financial strength and ability to piece together strong consortiums, similar to the way in which Siemens has been able to do with A2SEA and DONG Energy,’ he explains. ‘Vestas helps with technology and their track record.’

In addition, by virtue of its December 2010 acquisition of U.K.-based Artemis Intelligent Power, MHI could assist Vestas in the offshore wind space, Shreve points out.

‘Vestas has been seeking help from a major conglomerate for some time to share the cost of its 7 MW offshore program," he says.

According to Shreve, the question lies in MHI's existing investments in the Artemis technology and whether the joint venture would take steps to commercialize that hydraulic drivetrain or move forward with Vestas' more traditional turbine architecture.

For MHI, a partnership with Vestas could also prove beneficial. Like Vestas, MHI's wind division has struggled lately, and its challenges stem, in part, from a protracted patent-infringement dispute with GE that began in 2008.

In the most recent decision in the case, a U.S. District Court for the Middle District of Florida granted GE's motion for summary judgment, ostensibly dismissing Mitsubishi's case.

The dispute has been particularly harmful to MPSA because the company is now restricted from selling its 2.4 MW wind turbine. As a result, the company's $100 million nacelle assembly plant has remained idle since it opened in 2011. Currently, MPSA only sells its 1 MW wind turbine in the U.S.

According to a source familiar with both parties, a joint-venture partnership could provide a mechanism for MPSA to get around its legal issues with GE.

‘Vestas' equipment could potentially help Mitsubishi with the patent-infringement issue,’ says the source, who warns against speculating too deeply, as several factors could ultimately derail such a partnership.

‘A marriage of the two is not likely unless both companies will mutually benefit," says the source, who wished to remain anonymous. "I just don't see it.’

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