LDK Solar has entered into an agreement to acquire the crystalline module manufacturing plant of Best Solar. The transaction will be based on a cash consideration of US$21.5 million, representing the value of the assets acquired determined on a neutral basis.
“This acquisition will significantly enhance LDK Solar’s position in the downstream PV market,” stated Jack Lai, executive vice president, CFO, and secretary of LDK Solar. “LDK Solar has been fulfilling the majority of its solar module needs through purchases from Best Solar over the past three quarters. We look forward to realizing cost efficiencies by bringing crystalline module manufacturing in-house. This acquisition represents an important step as we continue to expand the scope of our vertical integration and strengthens our competitive advantage within the sector.”
The market value was determined by a valuation analysis performed by a third-party independent valuer and approved by LDK Solar’s management team and audit committee. Best Solar will continue to compete with LDK Solar in the module business after completion of this transaction.
Best Solar is wholly owned by LDK New Energy Holding, which is LDK Solar’s controlling shareholder, and wholly owned by Xiaofeng Peng, chairman and CEO of LDK Solar.
Vishal Shah, senior analyst at Barclays Capital, says that this acquisition could result in a modest positive impact on cost structure, but that the challenge would be to gain traction in the module business while improving balance sheet health.
LDK’s current tolling fee to Best Solar is ~$0.35/W (cell to module) and processing cost of Best Solar assets is ~$0.33/W, which implies ~2-3c/W cost savings. “The acquisition value of ~4c/W seems reasonable, but we remain somewhat concerned about LDK’s ability to drive such large volume growth in the module business anytime soon. MGMT is currently targeting ~300-400MW module shipments in 2010 (vs. current quarterly run-rate of ~20MW). Our estimates currently assume ~200MW module shipments in 2010,” states Shah in his report.
Shah also points out that module business strategy involves risk. “The company is yet to receive all the money from its Q-Cells JV project (checks suggest ~60% funds received so far, with ~40% likely by Apr ’10). Cash balance appears to be sufficient for now, but with ~$250M capex requirements for ’10, tighter lending policies in China increase the risk of balance sheet strain, if demand were to slowdown in 2H10/2011.”