I’m not sure if American Superconductor (Nasdaq: AMSC) followed the market higher this week, or if we’ve actually hit bottom, but the stock is up 11%. It’s a nice bounce no matter the reason. Management finally started to open up just a little yesterday by announcing an amendment to its The Switch acquisition.
The deal was initially for a total of $265 million, paid with $186 million in cash and the rest paid in stock. But after the Sinovel news broke, and AMSC’s stock dropped, the deal was in question. Some of that uncertainty was cleared up when management announced it had put up a cash advance of $20.3 million and has until Sept. 30 to terminate the deal. Two 30-day extensions are also available if financing can’t be lined up by then.
This is important because it puts some answers behind one of the (smaller) question marks hanging over AMSC right now. When I highlighted why I was doubling down on the stock earlier this week I gave uncertainty as one of my reasons, and as uncertainty clears up the stock should rise. Now if we could only get those pesky SEC reports filed.
Cash, cash, cash
Another reason I gave for being long AMSC stock was the cash on hand and zero long-term debt. The company had about $240 billion in cash at the end of the first quarter, so a $20.3 million hit, even if it never completes financing for The Switch, isn’t a deal breaker for the stock. That should leave plenty of cash to get the business back on its feet.
The question now returns to if American Superconductor can get its wind business back on its feet while growing its new businesses. Superconductor cables are inching forward and the company is trying to compete with Power-One (Nasdaq: PWER) and Satcon Technology (Nasdaq: SATC) in the inverter business. The pie may be growing in each of these areas but will American Superconductor grab enough of it? That’s the million-dollar question.
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