Study Of The Suzlon-Hansen Merger

Suzlon Hansen Merger

Contents

SUZLON 3

HANSEN TRANSMISSION 4

INDUSTRY ANALYSIS 4

Wind energy - at an inflexion point 4

MARKET POTENTIAL OF WIND ENERGY 4

Value Chain of the industry 4

Critical success factors 4

Wind energy project sector 4

Industrial and wind turbine gearbox manufacturing 4

STRATEGIC INTENT 4

SUZLON 4

Suzlon competitive strengths 4

Risks and concerns 4

Strategic Intent of the acquisition for Suzlon Energy 4

Strategic Intent of the acquisition for Hansen Transmissions 4

Congruence in Intent 4

Synergy Benefits 4

Deal Structuring 4

Post merger integration 4

Organization structure of SEL after reorganization 4

Assessment of the Deal 4

References 16

SUZLON

Suzlon Energy Ltd (Suzlon), promoted by the Tanti family in 1995, is India's largest and world's sixth largest supplier of Wind Turbine Generators (WTGs) , with proven technical and execution capabilities to offer end-to-end solutions. Suzlon's core business comprises of development, manufacture, sale and maintenance of wind power systems. Suzlon was quick to realize that in an industry where customer purchases are driven by project IRR (and not by product differentiation); cost leadership was paramount to profitability. To achieve this, Suzlon has built a functionally diversified business model that seeks to pool together best resources in each region to deliver world-class products at competitive price.

Figure 1 - Suzlon Business Portfolio

History

* Incorporated in 1995 by Textile manufacturer Mr. Tulsa Tanti.

* Entered into no. of technological collaboration with no. of German companies & Wind energy division of Enron etc. And entered into different markets through no. of wholly owned subsidiary till 2005. Established R&D centers in Netherlands and USA through small acquisitions.

* 2005 went public and was oversubscribed.

* 2006, first major acquisition of HTI ensuring vertical integration for its end to end solution provider vision.

* 2007 acquired RePower of Germany

HANSEN TRANSMISSION

Hansen Transmissions International NV ("Hansen"), headquartered in Belgium is a leading gearbox and drive train manufacturer with strong R&D capabilities and modern manufacturing facilities. Hansen has a focus on the fast growing wind turbine generation sector and is also active in other industrial segments of the gearbox market. The Company was founded in 1923 and its primary manufacturing facilities are in Belgium, with sales, assembly and service centers in the UK, US, South Africa and Australia. It currently employs 1200 engineering and management professionals spread across these establishments. Hansen's current manufacturing capabilities include 3,600 MW of wind turbine gearboxes and 3,000 units of industrial gearboxes per year. Hansen Transmissions supplies drive solutions for a wide range of applications, such as bucket elevators, car crushers, cement kilns, conveyor systems, industrial mixers, paper mills, pulpers and many others. Hansen also delivers gear units for water treatment systems like aerator drives, screw pump drives and brush aerator drives for waste water treatment plants.

For many years, Hansen is also an experienced and known partner in renewable energies, particularly as a supplier to the wind power generation industry.

History

* 1923, 'La Mecanique Genrale'(LMG) established in Antwerp for customized gear manufacturing, David Hansen works as an engineer.

* 1950, Hansen gets patent for standardization of gear manufacturing. 'Machinery and Gear Hansen' (MGH) is established as subsidiary of the company. Shift from gear manufacturer to industrial transmission solution provider

* 1966, LMG and MGH are merged and name changed to 'Hansen Transmission International' (HTI) in 1972.

* It was merged, demerged till 1999 within BTR plc. Organization which was renamed to Invensys.

* Later in 2000, it was sold to private equity firm Allianz Capital partners.

INDUSTRY ANALYSIS

Wind energy - at an inflexion point

The American Wind Energy Association (AWEA) reports that the cost per kWh of wind generated electricity has fallen from 38 cents in the early 1980s to 3-6 cents today depending primarily on wind speed at site. In UK, for instance, developers have contracted to build wind farms at a price of less than USD 3 cents/kWh, comparable with other conventional sources of power. Rising fossil fuel prices have dramatically influenced the competitive position of conventional power generation technologies rendering wind power even more competitive. Today favorable cost economics has brought wind energy at an inflexion point.

Figure 2 - Potential of wind power

While operational costs have always been an advantage for wind power, high capital cost per unit constrained its economic viability in the past. Technological advancement has made it possible to build larger and lighter turbines, which can capture more energy leading to a substantial fall in capital cost per unit. Over the last two decades, there has been a 55-fold increase in yearly electricity output from wind, partly because the swept area is 25 times larger (due to larger turbines) and partly because the tower height has increased substantially,