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LDK Solar Makes Bid for Sunways to Secure Distribution

(Corrects to show that Standard & Poor’s doesn’t rate LDK debt in ninth paragraph of story published on Jan. 3)

LDK Solar Co. (LDK)’s plan to buy Germany’s Sunways AG (SWW) provides China’s second-largest solar-panel maker with access to new technology and a distribution network in the world’s biggest photovoltaic market.

Sunways shares rose (SWW) the most in six months in Frankfurt yesterday after LDK offered to purchase the Constance-based maker of solar cells and panels for about 24.2 million euros ($31.4 million), excluding contributions in kind. The stock dropped 0.1 percent today. The acquisition would be the first by a Chinese solar-energy company in Germany, where a record 7,400 megawatts of solar capacity was installed in 2010.

LDK “will buy a company with a well-known brand, decent technology and established sales channels for little money,” Stefan Freudenreich, an analyst with Equinet Bank AG, which advises Sunways on the share sale, said by telephone from Frankfurt yesterday. The Chinese company will also get access to Sunways’ solar-inverters business, devices used in all photovoltaic installations, he said.

German panel makers are struggling as demand is falling and competition from Asia is rising. The factory capacity Chinese manufacturers added in recent years resulted in price declines that contributed to insolvency filings in December by Solar Millennium AG (S2M), a project developer with headquarters in Erlangen, Germany, and Berlin-based module maker Solon SE. (SOO1)

Own Brand, Listing

“The hope has arisen that consolidation of the solar industry has started,” Erkan Aycicek, an analyst at Stuttgart, Germany-based Landesbank Baden-Wuerttemberg, said yesterday. “The recent insolvencies also mean that overcapacity is being reduced.”

Sunways, which was profitable (SWW) in 2010, reported losses in the first and third quarters of 2011. In addition to inverters, which convert electricity from panels for use on the power grid, it makes modules and cells.

Linklaters LLP’s Dusseldorf office is the legal adviser for Sunways in the deal, Harald Schaefer, a company spokesman, said by phone today. LDK is advised by Sidley Austin LLP’s Frankfurt office, according to a Dec. 31 statement from LDK.

LDK and Sunways plan to complete their transaction by the end of the first quarter and the German manufacturer will maintain its own brand and stock market listing, the companies said yesterday in a separate statement. LDK said it’s “convinced of the Sunways products and business model.”

LDK had about $262 million in cash and near cash as of Sept. 30, according to data compiled by Bloomberg. The company on Dec. 7 sold 500 million yuan ($79 million) of three-year notes. Standard & Poor’s doesn’t rate LDK’s debt while Moody’s Investors Service ranks it B1, the company’s fourth-highest junk rating.

Wafers, Cells

In the third quarter, LDK’s net loss widened to $114.5 million from a loss of $87.7 million in the second quarter, the company said on Nov. 22. LDK may report a fourth-quarter net loss of $79 million, according to the median of 12 analysts’ estimates compiled by Bloomberg.

Xinyu-based LDK supplied Sunways with wafers, a silicon- based material that’s cut into cells. The companies agreed to terminate the long-term supply contract, they said. Sunways will make a final payment to LDK in “the lower double-digit million range,” they said.

The German company is backing a full takeover “as this would give us an anchor investor and easier access to financing to pursue growth,” said Sunways’s Schaefer.

“Sunways has come under financial pressure and it may have had no alternative than selling to LDK, with which it has cooperated for years,” Freudenreich said. Solar-Fabrik AG (SFX) is also a potential takeover target for Chinese producers because of a successful business model, access to German sales channels and a “very cheap” price, the Equinet analyst said.

Possible Cooperation

Solar-Fabrik is in talks with other companies in the industry, including from China, over possible cooperation agreements, Chief Executive Officer Guenter Weinberger said in a phone interview yesterday. The Freiburg-based company, which obtains solar cells in Asia for manufacturing modules in Germany, isn’t planning a share sale, making a takeover by another company more difficult, he said.

Production of inverters has already started to shift from Europe to China and Southeast Asia as manufacturers seek to cut costs, Bloomberg New Energy Finance said in a Nov. 30 note. “Even for inverters manufactured in Western markets, the drive for cost reductions means more of the components are being sourced from Asian markets,” the research agency said.

The solar-panel supply glut in China may lead to a consolidation, cutting the number of domestic manufacturers to 15 within five years, according to the Beijing-based Energy Research Institute at the National Development and Reform Commission. There were 330 panel makers in 2008, the Chinese Renewable Energy Society estimated.

Module Production

The contributions in kind include Sunways taking indirect ownership in a Chinese company, providing the German manufacturer with access to module production in that country as well as sales outlets for inverters, they said.

Sunways fell (SWW) 0.1 percent to 1.865 euros at the 5:30 p.m. close in Frankfurt today, after soaring 21 percent yesterday. That pared the stock’s decline in the past 12 months to about 53 percent.

Shares in Solar-Fabrik had the biggest three-day advance in nearly three months. They were unchanged at 1.80 euros by the close in Frankfurt after yesterday’s 16 percent jump, taking its increase over the past three trading days to 19 percent, the most since the three days through Oct. 10, 2011.

LDK is unlikely to keep Sunways’ solar-cell production plants in the long run amid global overcapacity, though it may develop new cell technology in Germany and expand the inverters business, Freudenreich said.

‘Grabbing Technology’

“This is the first Chinese company grabbing German inverter technology,” Freudenreich said. “With LDK’s help, Sunways may be able to sell inverters in growing markets such as China and the U.S.”

The Chinese company has signaled that the German manufacturer’s cell plants will be kept operating amid a push to develop “premium products made in Europe,” said Schaefer, the Sunways spokesman.

Robert Bosch GmbH said on Dec. 21 that it bought Conergy AG’s solar inverters unit, putting the Stuttgart-based car-parts maker, the world’s biggest, into competition with established suppliers including Germany’s SMA Solar Technology AG (S92) and Power- One Inc. based in Camarillo, California.

To contact the reporter on this story: Stefan Nicola in Berlin at snicola2@bloomberg.net

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

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