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Thursday, August 03, 2006

Suntech Power buys way into Japanese solar market with MSK acquisition

As reported in the EE Times, Suntech Power (NYSE:STP) has reached agreement to acquire MSK Corporation, one of Japan’s largest PV (photovoltaic) module manufacturers and a leader in the BIPV (building integrated photovoltaic) space, in a two step cash and stock transaction valued at up to $300 million based on MSK achieving certain revenue performance targets by year end 2007.

In a strategic move to expand capacity and enter markets besides Germany, the United States, or southern Europe, Suntech has outflanked the competition outside of Japan and brought a new dynamic to the Japanese solar market.

Dr. Zhengrong Shi, Suntech's Chairman and CEO said, ''While Japan is the world's largest single market for PV modules, it is also one of the most difficult markets for foreign players to enter. We anticipate that this acquisition will give Suntech the advantage of MSK's nationwide sales and marketing platform in Japan, which we expect to leverage to grow our market share in this important market.''

A slight correction to Dr. Shi’s statement is in order. While Japan has the largest installed base of solar photovoltaic modules and is the world leader in solar cell and module production, the German market is the world’s largest in sales volume.

Suntech will face tough, domestic Japanese solar cell and module competition from world leader Sharp and top ten global producers Kyocera, Sanyo, and Mitsubishi. MSK is likely to operate as a somewhat autonomous subsidiary of Suntech, and MSK’s CEO, Dr. Tadao Kasahara is to remain in his current position for four years.

MSK has annual solar module production capacity of 200MWp. Since MSK does not produce their own solar cells, I would expect them to transition their manufacturing to Suntech solar cells. MSK’s amorphous solar thin film and module production technologies will expand and complement Suntech’s technology, intellectual property, and product mix. Suntech will want to exploit MSK’s BIPV products in the Chinese market and perhaps build new module factories in China or other significant markets.

Competitors will be eager to see if this Sino-Japanese linkup is a happy and synergistic one. I believe this landmark deal signals the “New Japan” is open for international business, including mergers and acquisitions. Is there a lesson here for US regulators concerned about Chinese acquisitions of American firms?

(Full disclosure: Mitsubishi UFJ Securities acted as a financial advisor to MSK on this transaction. I own shares of Mitsubishi UFJ, NYSE:MTU, stock.)

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