Monday, April 16, 2012

Rumor Has It

Rumor has it CNOOC is thinking of acquiring Canadian Solar. Canadian Solar has denied this rumors but what if it's true? My first thought was you'd have to expect CNPC and Sinopec to follow suit with acquisitions. My second thought was why stop at oil companies when it comes to potential solar suitors - any big bucks conglomerate would do. At this point Suntech, Trina and Yingli (AKA: Suntringli) are the established name brand Chinese module makers. Runner-up brands include Canadian Solar and Jinko. If one of these companies gets acquired it could start a sugar daddy scramble among the remaining players. Analysts often point out that all the Chinese solar companies are carrying high debt loads but this worry would mostly go away if large conglomerates got in the game. Big money could look at the existing debts as development costs and simply write a check. Things would get extremely interesting after that. 

The GLC Route

Why buy at a premium when you can pull a GCL? A few years back GCL jumped into the solar wafer business with both feet. The chart on the right shows their rapid ramp up. Back in 2010 it looked like LDK and Renesola were going to dominate wafering. Today LDK and Renesola both look ready to close up shop.

Why wouldn't new entrant not try the same strategy with cells or modules? If you started things from the ground up and built a factory with all new manufacturing equipment you'd have the lowest manufacturing costs in the industry. You'd probably be able to run the other companies into the ground and then buy up all their patents on the cheap. Three problems with this strategy come to mind. 1. The Central Banks that are holding Suntringli's debt wouldn't look too kindly on this maneuver. You'd have a hard time getting any money out of them. 2. Purchases can backfire. Total's purchase of SunPower is a prime example. 3. Wafers are different than modules. When you buy a photoelectric system you care about who makes the panels - name-brand comes into play. Name-brand allows Suntech to sell at a 10 cent/Watt premium. When modules are selling for 80 cents/Watt a 10 cent/Watt premium is a big deal. 

The New GCL Route

It's pure speculation but it occurs to me that CNOOC isn't the obvious match for Canadian Solar - GCL is. GCL and Canadian Solar already have a sizable joint venture in the form of a 600 MW wafer plant in Suzhou. Maybe the rumor of CNOOC's interest was planted to force GCL's hand? Like I said... pure speculation. One thing's for sure though, we haven't heard the end of this. 

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