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Total to Buy 60% of SunPower for $1.38 Billion in Solar Bet

Total SA (FP), Europe’s third-biggest oil producer, agreed to buy as much as 60 percent of SunPower Corp. (SPWRA) for $1.38 billion, taking advantage of increased global interest in renewable energy.

SunPower, the second-largest U.S. solar panel maker, described the acquisition price of $23.25 a share as a “friendly tender offer” in a statement yesterday after the close of regular trading. SunPower surged $6.08, or 38 percent, to $22.20 at 9:32 a.m. on the Nasdaq Stock Market.

The deal for San Jose, California-based SunPower may lead to more solar industry acquisitions as U.S. and European suppliers seek help competing against rival suppliers in Asia, said Kevin Landis, portfolio manager at Sivest Group Inc.

“This is exactly what SunPower needed to compete with the Chinese manufacturers that are getting so much support from their government,” Landis said in an interview. “It also allows SunPower to double down on the technology improvements they’ll need to compete in the long run.”

Sivest, also based in San Jose, held about 17,000 shares of SunPower at the start of the year. The stock has gained 72 percent this year.

The takeover may trigger similar acquisitions by oil companies that consider renewable-energy manufacturers a way to improve their clean-energy credentials and may profit when surging crude prices reduce demand for fossil fuels, John Hardy, an analyst at Gleacher & Co. in New York, said in a phone interview.

Cheaper Borrowing Costs

“This makes a lot of sense for Total, given the global shift to renewable energy, increasing concerns about nuclear power and high natural-gas prices in Europe,” Hardy, who has a “buy” rating on SunPower, said in an interview. “It’s a natural hedge against high oil prices and depleting reserves.”

SunPower’s solar power plants become more profitable too because Total has cheaper borrowing costs, Hardy said.

Total will also provide SunPower with as much as $1 billion of credit support over the next five years.

“The fact that a global oil and gas giant like Total has made such a significant investment in a solar company is extremely encouraging for the entire solar industry,” said Shawn Qu, chief executive officer and founder of China-based Canadian Solar Inc. (CSIQ) “Total’s investment demonstrates that solar is really coming into its own as a viable energy market, and traditional energy conglomerates want to be part of that burgeoning growth.”

Shares of Total, which reported first-quarter earnings today that climbed 35 percent to 3.1 billion euros from a year earlier, rose 0.4 percent to 43.17 euros at 4:15 p.m. Paris time.

Solar Rally

Jesse Pichel, an analyst at Jefferies Group Inc. in New York, said in an interview that other solar companies may also be acquisition targets. “This group is undervalued and at least some people recognize the value.”

Solar firms increased after the announcement, which came six weeks after the nuclear-power accident in Japan.

China’s Suntech Power Holdings Co., the world’s largest solar panel manufacturer, rose 2.5 percent to $9.29 and MEMC Electronic Materials gained 6.4 percent to $11.84. Canadian Solar increased 4.7 percent and Tempe, Arizona-based First Solar Inc. (FSLR), the world’s largest thin-film solar panel maker, climbed 3.4 percent.

Total is buying a solar-power company that’s less profitable than most of its peers even after improving margins in the fourth quarter. The company’s operating margin over the last four quarters was 6.3 percent, below the 8.1 percent average and 14.1 percent market-capitalization weighted average of the 37-member Bloomberg Global Leaders Solar Index.

46% Premium

The offer includes both SunPower’s Class A and Class B shares. It represents a 46 percent premium over the April 27 closing price for SunPower’s Class A common stock and a 49 percent premium for its Class B common stock, and values SunPower’s total equity at $2.3 billion.

The transaction is subject to approval from the boards of both companies, and must receive approval from both U.S. and European Union antitrust authorities. SunPower said its current management team will remain intact.

Closing is also conditional on Total’s final offer including at least 50 percent of SunPower’s shares, the companies said. Deutsche Bank AG is advising SunPower on the transaction and Credit Suisse Group AG and Messier Maris et Associes are advising Total.

To contact the reporters on this story: Andrew Herndon in San Francisco at aherndon2@bloomberg.net; Christopher Martin in New York at cmartin11@bloomberg.net; Ehren Goossens in New York at egoossens1@bloomberg.net

To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net

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