Much like the notion of albino alligators living in the New York City sewers, the urban legend of General Electric (or some other large conglomerate) acquiring First Solar (Nasdaq: FSLR) is a recurring meme.
The idea bordered on outlandish when the company's stock was trading at a 52-week high of $175.45 with a market cap of more than $15 billion. But with the stock currently trading at $45.44 per share and a market capitalization of $3.93 billion, the firm is starting to look like a potential takeover target. At a 25 percent to 40 percent premium, a First Solar deal would cost General Electric $5 billion to $6 billion -- or just three percent of GE’s $168 billion market capitalization.
Note that despite the plunge in market cap and the struggles in thesolarindustry, First Solar had net sales of more than a $1 billion last quarter at a gross profit of 37.7 percent. The firm is immediately accretive in a big way to an acquiring company's bottom line.
Aaron Chew of Maxim Group Equity Research, in a recent research note, makes some points both for and against a First Solar acquisition by GE.
Chew sees a similar theme played out in recent solar M&A deals such as the Total investment in SunPower and the Hanwha acquisition of Solarfun. He believes "the strategic merits of merging GE’s low cost of capital with First Solar’s project business makes a deal more sensible than in years past." He notes other factors that might motivate the sale by First Solar stockholders, as well:
- $25 per kilogram polysilicon prices pose an extremely challenging competitive threat.
- Widespread management turnover with FirstSolar's CEO, CFO, and COO having left the firm over the last seven months.
- Founder and Chairman Mike Ahearn stepping in as CEO despite having moved on in 2009.
GE already has big plans in cadmium telluride (CdTe) in its Primestar program, 400-megawatt Colorado factory and a technology roughly the same as First Solar's. First Solar would seem to bolster that effort. As Chew writes, "GE has a strong brand, manufacturing prowess, and an efficiency target of 13 percent in 2013 that exceeds First Solar’s current 11.8 percent. First Solar would bring to the table immediate scale, sales/subsidy policy experience, and a downstream segment that offers a captured channel to sell its modules."
"Perhaps most significant is the transformational boon GE’s low cost of capital could provide to First Solar’s project development business. With First Solar not yet having sold a major U.S. utility scale projects without the low cost of capital provided by a DOE loan guarantee, its ability to secure ready access to capital markets at a low cost will be critical, in our view – for its growth strategy, particularly, as we estimate its core direct module sales are losing money at current prices."
As long as we're fantasizing, other potential acquirers would include Siemens, Intel, one of the oil companies, or Asian conglomerates such as Samsung or LG. Or maybe Apple wants to get into the solar business, having tired of fat margins and industry dominance.