Vestas Jumps to Two-Month High on Mitsubishi Heavy Talks

Vestas Wind Systems A/S jumped to a two-month high in Copenhagen trading after saying it’s in talks with Mitsubishi Heavy Industries Ltd. on a possible “strategic cooperation” that analysts at Nordea Bank AB and Sydbank A/S said probably extends to offshore wind turbines.

Should the talks lead to an agreement, Vestas will make a statement “immediately thereafter,” the Aarhus, Denmark-based company said late yesterday in a statement to the Copenhagen Stock Exchange, without providing further information. The shares rose 19 percent.

The announcement came a month after Vestas cut a deal with banks that allowed it to draw credit and five days after it announced 1,400 job cuts to add to 2,335 positions slashed in January. The world’s biggest turbine maker is trying to return to profit at the same time as it projects shipments to drop in 2013 due to uncertainty in the U.S. market.

“The place where Vestas’s need for cash and Mitsubishi’s need for technology can meet is in offshore wind turbines,” Jacob Pedersen, an analyst in Aabenraa, Denmark, at Sydbank said today in a phone interview. “That could speed up the launch of the V164 turbine, and both companies could benefit.”

Vestas has said it’s seeking a partner to help develop the V164 7-megawatt offshore wind turbine, which it will only manufacture to order. A prototype of the machine, its biggest yet with blades that sweep a circle 164 meters (538 feet) across, is scheduled for completion in 2014. The nacelle, the unit holding the generating components, plus the blades alone will weigh more than 500 tons combined.

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Lars Villadsen, an investor relations spokesman for Vestas, declined today in a phone interview to comment on whether the talks cover the offshore machine or Mitsubishi taking a potential equity stake in the Danish company. Kenichi Nakamura, a Mitsubishi Heavy spokesman, confirmed by phone that the company is in talks with Vestas. He declined to elaborate.

Vestas shares rose 19 percent to 40.19 kroner in Copenhagen, the highest since May 30. That cut the company’s decline in the past year to 61 percent. Tokyo-based Mitsubishi, which posted fiscal first-quarter net income of 18.9 billion yen ($241 million) on July 31, fell 2.1 percent to 329 yen.

Patrik Setterberg, an analyst at Nordea, also said collaboration on offshore wind is the most likely subject of the discussions between Vestas and Mitsubishi Heavy.

“It’s most likely that this dialog has been initiated due to the fact that Vestas has been looking for a partner for the V-164 turbine,” Setterberg said today, describing Mitsubishi as a “suitable fit.”

Off Fukushima Coast

Mitsubishi Heavy is among developers erecting a 16-megawatt pilot floating wind plant off the Fukushima coast. Three turbines are due to be installed by March 2016, with plans to expand capacity to 1,000 megawatts in the area, according to Japan’s trade ministry, which has set aside as much as 12.5 billion yen ($159 million) to fund the early part of the study.

In a note to investors, Setterberg said two other possibilities include Mitsubishi taking minority ownership in Vestas, or the two companies forming a joint venture.

Vestas Chairman Bert Nordberg told the Danish newspaper Berlingske Business last week that he’s seeking a single major shareholder to take a stake of up to 20 percent in the turbinemaker. Speculation that Vestas may be an acquisition target has mounted since a Sunday Times report on July 1 said the company was considering putting itself up for sale after starting debt restructuring talks with lenders.

Vestas on July 31 said its banks agreed to allow it to draw on credit lines and defer a test of whether the turbine maker is in breach of its debt covenants.

U.S. Market

“This looks like an attempt from Vestas to get cash investments so they don’t have to go to the bank again,” Martin Prozesky, a London-based analyst at Sanford Bernstein, said today by phone. “For Mitsubishi, it could be a chance to re-enter the market in the U.S. by teaming up with Vestas. There could also be technology sharing arrangements involved.”

Mitsubishi has built a factory to make nacelles in Fort Smith, Arkansas, that has yet to begin production, Hideo Ikuno, a spokesman for Mitsubishi Heavy said today. He also said Mitsubishi Heavy’s turbine blade factory in Mexico suspended operations, though he could not immediately confirm when.

A federal jury in Dallas told Mitsubishi Heavy on March 8 to pay General Electric Co. $170 million for infringing a patent on a way to keep turbines connected to utility grids during voltage fluctuations without sustaining damage. While Mitsubishi Heavy is challenging that decision, the litigation led to a drop-off in production, the company has said.

Japanese Push

Any partnership between Vestas and Mitsubishi Heavy coincides with a push by Japan to encourage more development of renewable sources of power.

Japan’s government in July introduced an incentive program to promote investments in clean energy. The so-called feed-in tariff for wind is 23.1 yen per kilowatt-hour for 20 years, almost double the market rate for industrial users. Feed-in tariffs require utilities to pay above-market rates to producers of clean energy with the added costs passed to consumers.

Japan’s trade ministry has raised funding for offshore wind power development, mainly for fixed turbines, to 5.2 billion yen this year from 200 million yen in 2008.

-- With assistance by Kiyotaka Matsuda in Tokyo, Stefan Nicola in Berlin and Andrew Herndon in San Francisco. Editors: Todd White, Stephen Cunningham

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