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World's Biggest Solar Manufacturer Could Go Private

By Travis Hoium - Dec 13, 2017 at 7:38AM

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Canadian Solar is considering an offer from its CEO to be taken private.

Canadian Solar Inc. (CSIQ -2.31%) is either the largest solar manufacturer in the world or in the top three depending on the timing of manufacturing expansions. And with an expected 10.3 GW of solar panel capacity by the end of 2018, it could have 10% of the global solar panel market. 

But investors looking at Canadian Solar as a great play on solar may be disappointed to find out that its CEO is trying to take the company private. A non-binding proposal announced on Monday would pay current shareholders $18.47 per share to complete the buyout and take another major solar manufacturer private. Here's what investors should know about the proposed deal. 

Large solar array at sunset.

Image source: Getty Images.

Canadian Solar is following a solar buyout trend

CEOs taking major solar manufacturers private is now a clear trend in the solar industry, particularly for companies with manufacturing based in China. Trina Solar and Renesola's manufacturing businesses have already been taken private, and JA Solar (NASDAQ: JASO) has its own buyout offer on the table. Between Trina Solar, JA Solar, and Canadian Solar, it's possible that three of the top seven solar manufacturers by revenue will have been taken private in the last two years. 

What's not clear at the moment is what privatization means for these companies. It could mean they're going to contain growth and focus on improving the financial results of existing operations out of the public eye. This could constrain solar panel supply, leading to higher panel prices, or stable prices if oversupply subsides. 

It's also possible that this will give them the ability to lean on Chinese state-run banks to expand capacity further. Chinese banks have funded the explosion in solar manufacturing over the last decade, and this could allow the country to consolidate solar manufacturing power. 

Given the growth of manufacturing outside of China -- including by the companies listed above -- I tend to think their motivations for going private are motivated by profit. But it remains to be seen if the industry is capable of constraining growth

What's the future of Canadian Solar? 

The CEO's offer for Canadian Solar is non-binding, so it's possible a deal to take the company private isn't completed. Even if there is, the premium above Friday's closing price of $17.25 per share isn't very high, so I don't think investors have anything to lose by holding onto shares. 

For the solar industry more broadly, the impact is a little more uncertain. Depending on whether or not Chinese manufacturers expand production as private companies, or constrain supply and focus on profits, the impact on the financials of competing solar manufacturers could be positive or negative. What I think it does show is that CEOs see their solar manufacturers as incredible values in today's market. That's worth noting for solar investors. 

Travis Hoium has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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