French energy company Total has offered to pay up to $1.37 billion for a majority stake in U.S. solar company SunPower, one of the biggest moves ever by an oil and gas giant into the market for renewable energy.
Solar power has been one of the fastest growing energy industries in recent years, but still remains tiny compared with oil, gas and coal because of its higher cost. With Total's financial heft behind it, San Jose, Calif.-based SunPower said solar energy would become competitive with fossil fuels more quickly.
"It's a vote of confidence from a much larger company and a vote of confidence for the solar industry as a whole," Wedbush analyst Christine Hersey said.
Total will launch a tender offer for up to 60 percent of SunPower's outstanding Class A common shares and 60 percent of its Class B common shares for $23.25 a share.
According to SunPower Chief Executive Officer Tom Werner, Total preferred to keep its stake at 60 percent rather than buy the company outright because it wanted to maintain the Silicon Valley company's "entrepreneurial pace."
The price represents a more than 44 percent premium to SunPower's Class A closing share price of $16.12 yesterday. In the last few years SunPower's shares have been battered by concerns about stepped-up competition from Chinese rivals, the global financial crisis that squeezed financing for solar energy projects, and uncertainty surrounding support schemes for renewable energy by governments in Europe.
The stock has tumbled dramatically since hitting an all-time high of $164.49 in late 2007.
It was Total that first approached SunPower regarding a deal, Werner said on a conference call with analysts. The oil giant looked at 200 solar companies over 2 years, Werner said. At the same time, SunPower spent the last year weighing options for how it could finance its aggressive expansion plans.
"Total came out as the clear winner," Werner said.
The rapid emergence of Chinese solar panel makers in the recent years has driven the price of solar power down sharply and stepped up competition in the market. Chinese players have also benefited from billions of dollars in credit guarantees from government banks at a time when traditional financing sources became more difficult to access for their U.S. and European counterparts.
Werner said the Total deal would make SunPower more competitive against that industry backdrop because it will provide SunPower with up to $1 billion of credit support over the next five years--cash that will enable SunPower to speed development of solar power plants and expand manufacturing capacity.
"Our capacity to build projects has increased immediately," Werner said.
The deal has been approved by the boards of directors of both companies. SunPower will continue to operate with its current management team.