Shares of inverter maker Power-One (NASDAQ: PWER) have surged 58% higher today after the company received a $1 billion buyout offer from ABB (NYSE:ABB). The large electrical component maker offered $6.35 per share for the company and shares have moved slightly past that number, indicating that investors think there's a higher offer coming.
Why Power-One and why now?
The solar industry has gone through a lot of turmoil in the past three years but it is growing rapidly in the U.S. and in emerging markets like China and South America. Instead of the subsidy-fueled growth that drove the industry in the early 2000s, solar installations are now driven by competitive costs and a desire to reduce dependence on fossil fuels. It's this growth in sustainable markets that ABB finds attractive.
Companies building electrical grids and supplying components see this as one of only a few growth venues in a slow-moving electrical industry. General Electric (NYSE:GE) has already moved into solar with power plants, inverters, and thin-film manufacturing. Siemens (OTC:SIEGY) is the other big competitor in the electrical grid industry and it makes inverters and is making small investment in solar, although it isn't a big player so far.
As the solar industry grows and large conglomerates begin to see who the winners and losers will be, I expect more acquisitions like this. Companies like ABB, GE, and Siemens would rather pay up for a sure winner than bet on the wrong technology in a nascent industry.
Is this the beginning of a bidding war?
The price action of Power-One's stock would indicate that investors are expecting a bidding war. I don't see a lot of logical buyers emerging because possible buyers like GE and Siemens already have the capability to do what Power-One does. They're unlikely to get in a bidding war with ABB when they could grow into solar organically.
There's the possibility that another buyer could emerge but it's a risky bet for investors. Why would investors shy away from Power-One at the low prices seen last week, and now suddenly see it as a value even though it's trading 58% higher? I'd take the money and run today if I owned shares of Power-One.