Offshore Market Potential Ignites Aggressive Bids For REpower

Suzlon Energy A/S and AREVA Group SA have made headlines recently for their competing bids to take over Germany-based wind turbine manufacturer REpower Systems AG. While both bidders seek access to REpower's 5 MW wind turbine offering to fulfill strategic plans to capture offshore wind power market share, they each bring different strengths to the deal. Suzlon, an India-based wind turbine manufacturer, offers REpower wind turbine market reach in the top two regions for offshore energy potential, and Paris-headquartered nuclear power developer AREVA would provide management skills in offshore build-outs.
   In late January, AREVA, which owns nearly 30% of REpower's shares, announced its intention to publish a cash tender offer of 105 euros per share for the shares it does not own. Suzlon followed AREVA's bid with a friendly tender offer of 126 euros per share with the support of Portugal-based power provider Martifer, owner of just over one quarter of REpower's shares. REpower's supervisory and management boards approved Suzlon's 126-euros-per-share bid on March 5 and recommended accepting the offer. Ten days later, AREVA increased its offer 14 euros per share over Suzlon's bid, which REpower's boards approved. To date, Suzlon has made no additional bid.
   The approvals from REpower's boards for both bids note that AREVA or Suzlon could make "appropriate strategic partners for the accelerated growth in the international wind energy industry."
   With a 6% share of the wind turbine market, Suzlon offers 1 MW, 1.25 MW, 1.5 MW and 2 MW turbine models and has expanded to China, Belgium, Denmark, Australia, Germany and the U.S. Of those countries, China and the U.S. are ranked first and second, respectively, in offshore wind energy potential. While REpower's product offering includes 1.5 MW and 2 MW wind turbines, it has two successful 5 MW wind turbine installations off the coast of northern Germany. According to Suzlon representatives, combining Suzlon's operations with REpower would expand Suzlon's offshore capabilities and give REpower access to expansion capital.
   "At the same time, Suzlon's high level of vertical integration along the supply chain could, after a period of integration, solve several pinch points currently crippling REpower's growth," says Keith Hays, global wind advisory research director for Emerging Energy Research, in his analysis of the deal – "Takeover to Position REpower for Global Growth."
   AREVA's interest in REpower, on the other hand, complements AREVA's increased activity in the renewables market. As a solution provider for zero-emission power generation, transmission and distribution, AREVA has focused its renewables market strategy on combining nuclear and renewable generation to meet global energy demand. The group's purchase of 21% of REpower in 2005 was part of the company's renewable power expansion plans.
   "Offshore would be a key focus area for an AREVA-owned REpower," says Hays in his analysis, "as the French firm has built up transmission cabling experience for U.K. offshore projects and can leverage its nuclear project management skills for massive offshore build-out."
   AREVA's transmission and distribution division won a contract in early March to develop the onshore and offshore substations for the Robin Rigg wind farm, which power service provider E.ON U.K. plans to build off the coast of Scotland and commission by early 2009. Furthermore, AREVA's relationship with E.ON is strengthened by E.ON's partnership in the joint venture EWC Windpark Cuxhaven GmbH, which ordered one of REpower's two 5 MW wind turbine installations.
   In addition to providing access to AREVA's financial strength, the takeover would situate REpower with the commercial reach necessary to accelerate its development in the offshore wind power market, AREVA representatives say. Hays, however, warns in his analysis that AREVA's shareholder structure could make it difficult for the company to match a new bid from Suzlon, should one be made.
   "Suzlon's flexibility to raise its offer," Hays adds, "and the strategic advantages of acquiring REpower to fill out its global presence, suggest the firm will bid aggressively.’