BANGALORE - The allure of a bigger share of the fast-growing wind power market might force larger engineering companies to target American Superconductor Corp, a maker of electrical systems that run wind farms and turbines.
Shares of American Superconductor, which also offers smart grid infrastructure technologies, closed up more than 6 percent Friday on chatter that Swiss engineering group ABB Ltd could be in talks with the Devens, Massachusetts-based company.
I think it (the deal) is a possibility, analyst Pavel Molchanov of Raymond James said.
ABB is a large player in electrical engineering, including power grids, and so it could be a potential buyer for American Superconductor as it would add to its portfolio, Molchanov added.
Analysts said General Electric Co Siemens or any other competitor of ABB could be a potential suitor for American Superconductor, whose key customer is China's Sinovel Wind.
We never comment on rumors, said Jason Fredette, American Superconductor's director of investor and media relations. We do not talk about M&A activities or anything along those lines.
ABB spokesman Thomas Schmidt also refused to comment on what he called market rumours. The company, which also competes with France's Areva, had earlier said it was looking for bolt-on acquisitions.
Molchanov said American Superconductor is an expensive stock and an acquisition of the company would be dilutive to the purchaser, at least initially, but the long-term benefit in terms of new products and R&D would outweigh the cost.
Shares of American Superconductor trade at a whopping 207 times their forward earnings, compared with the electrical components and equipment sector, which trades at a multiple of 30 times. American Superconductor, which draws about 70 percent of its revenue from Sinovel Wind, beat the tide of recession, helped by the strong wind energy market in China.
While some analysts said a possible deal would not have any impact on Sinovel, others said China's largest wind turbine maker might have to renegotiate its major contracts with American Superconductor.
The company's overall revenue for the fiscal year ended March 2009 was about $183 million.
Shares of the company have risen by 157 percent in the past year, as governments set emissions targets and unveil subsidies for technologies to combat climate change.
The booming wind power business is set to see a flurry of deals as companies scramble to get a share of the fast-growing renewable energy pie.
Industry experts and company executives expect investments in green technologies, sometimes referred to as cleantech, to pick up significantly as early as this fall, with continued improvement through 2010. Renewable energies dominated by biomass -- such as firewood -- and including wind, hydro, solar and tidal power made up 13 percent of world energy demand in 2006, according to the International Energy Agency.
French turbines-to-trains group Alstom is said to be well placed to be a buyer in wind as it plays catch-up with more established rivals such as Denmark's Vestas, Spain's Gamesa, India's Suzlon Energy and Germany's Siemens.
I think there is probably going to be more consolidation on the wind turbine vendor side, rather than on the components side, analyst Ben Schuman of Pacific Crest Securities said.
Analysts said a possible acquisition of American Superconductor would boost ABB's position in the power grid infrastructure market and bolster its presence in China.
American Superconductor makes superconductor power cable systems that reduce transmission losses by a great extent and can be used in smart grids, which refer to power systems that can respond immediately to changes in supply and electricity prices.
The Chinese market is very important because of its commitment to wind energy and also due to easy availability of funds, analyst Vijay Singh of Janco Partners said.
I can see what ABB would want to acquire -- a nice little backlog book and a good presence in China, Singh added.
Shares of American Superconductor were trading down a percent at $32.81 Monday afternoon on Nasdaq. ABB shares were up 2 percent at $21.18 on the New York Stock Exchange. (Reporting by Bhaswati Mukhopadhyay and Bijoy Koyitty in Bangalore; Editing by Anil D'Silva)