BUYOUTS: Solar Joins Homeward Trek with Trina Bid

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Bottom line: The large premium being offered in Trina Solar’s new buyout reflects a recent flood of private equity chasing privatization deals for US-listed Chinese firms, and could breathe new life into many previously announced bids that have become dormant.

Trina gets rich buyout offer

The homeward migration by US-listed Chinese firms has taken a turn into the new energy sector, with solar panel maker Trina (NYSE: TSL) becoming the first major player in the space to announce a management-led buyout offer. Throughout the current round of buyouts that has seen some 3 dozen US-listed Chinese companies announce privatization bids this year, few have come in the new energy sector that includes about a half dozen of China’s top solar panel makers listed in New York.

That’s not to say that New York has been a comfortable place for these companies. Most of the big names saw their shares soar in their first few years in New York, only to watch them tumble between 2011 and 2013 as panel prices plunged due to massive oversupply. That downturn saw the departure of 2 of the sector’s biggest names from Wall Street, though the exit of Suntech and LDK was prompted by bankruptcy rather than privatization.

We did get a hint last month that the privatization wave might be spreading to the new energy sector, when wind energy giant Ming Yang (NYSE: MY) announced a buyout bid. (previous post) Trina’s entry to the buyout queue now raises the question of whether we might see a few more panel makers join the migration back to China, a point I’ll revisit towards the end of this post.

First let’s look at the latest buyout offer, which comes from a group led by Trina’s Chairman and CEO Gao Jifan. (company announcement; Chinese article) Under terms of the deal, the group would purchase Trina’s American Depositary Shares (ADSs) for $11.60 apiece, representing a sizable premium of more than 20 percent to their last close before the announcement.

The buyer group also looks relatively solid, with a unit of Industrial Bank Co as one of the main backers. The large premium and presence of Industrial Bank as a backer both reflect the sudden surge of interest in funding these buyouts by domestic private equity. That interest is seeing a flood of money rush into the market looking to back similar deals, which in turn is pushing up the size of premiums being offered.

Rising Offers

Among the latest developments in the buyout wave, 3 out of 4 have seen groups raise their offer prices above previously-announced levels, with Homeinns (Nasdaq: HMIN), Jiayuan (Nasdaq: DATE) and Taomee (NYSE: TAOM) all announcing higher offers. I suspect that many of the offers that have lain dormant since their original announcement in the first half of the year could soon come back to life, most at higher prices, which could provide some good quick profit opportunities for savvy investors.

This latest move of the buyout wave into the new energy space isn’t completely unexpected, though it’s still a slight surprise. That’s because most of these solar companies are standing on shaky financial ground due to lingering oversupply, and it’s quite possible that a few could go bankrupt or get sold for bargain prices in the next year. Such companies wouldn’t make particularly attractive buyout candidates, since their values are hard to determine and they could quite possibly become worthless.

All that said, let’s close with a quick look at who some other buyout candidates might be in the sector. Weaker companies like Yingli (NYSE: YGE) and ReneSola (NYSE: SOL) look unlikely, and so does the far stronger Canadian Solar (Nasdaq: CSIQ) as it prepares a separate New York listing for its solar power plant-building unit. That would leave mid-sized players like Jinko Solar (NYSE: JKS) and JA Solar (Nasdaq: JASO) as the most likely candidates, and I expect we could see 1 or 2 such offers in the last 2 weeks of the year.

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