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No. of Recommendations: 3
dduct -

Yeah, I didn't see this one coming, either. But not only is it a good synergistic deal....but the terms speak volumes in an extremely powerful way. And the potential additional synergies can't be ignored, either. (Like the fact that the Windec owner - now an AMSC VP - is going to concentrate on breaking Windtec/AMSC into India, now that they've sold over 700 wind unit sets in China and are pretty established).

I think you should listen to the conference call they held yesterday. From memory:

But, there is big cometition in GE and Vestas -- and they do not sound like they are customers ............. But, it is true that countries like China and India make local manufacturing a key part of government purchases in order to encourage competition. .....My only concern is how GE will view the Windtec deal. They have been a key sales partner for D-VAR's for some time. GE is the big name in electricity (and the "E" in GE stands for electric) and AMSC may now be viewed as a competitor. Losing their support might cause a short-term sales pause.

They addressed that. He expects GE and Vestas to remain customers; and he hinted that they could also be customers for using HTS-wire generators in wind turbines as well. (He said at least one company is working with them on that. I hadn't known that before). He also feels they are not really competitors; the business model is totally different. Even if they set up local wind turbine production in China completely, that would take time....and Windtec/AMSC with their customer, DHI, is already there; DHI already having all the necessary local sourcing connections that enabled them to move so quickly. (I mean, first order was for 20, last year; and now they are approaching 800....!!!). Not to mention the fact that there are some thing Vestas and GE probably wouldn't want to give up. They are operating on totally different business models. While they are in the same size category - i.e, 1.5MW turbines - it is not clear at all that Chinese buying totally locally would forego those cheaper (and more quickly available) units, to go for more expensive, slower-delivering units from the big guys. I think they will end up serving two different sets of customers.
And, by the way, the Chinese government's official goal is to quadruple installed wind capacity by 2010. Lotsa business available.

I also like the lack of debt and the fact the purchase will be accretive to earnings. While the number of total shares to be issued (1.3 million + 1.4 million) will potentially increase the share count by over 8% (there were 33.4 million shares fully diluted shares outstanding at the end of last quarter), that seems like a great tradeoff if the Power Electronics Systems business can sell complete systems and gain the critical mass to be highly profitable.

I think it is even better than that. The Windtec CEO gets the additional shares only if he exceeds 150% of their agreed-on revenue goals each year. And the fact that this successful businessman - who has only 30 employees himself - basically insists on being paid in AMSC stock just gotta make some of us stockholders smile.

AMSC is on a roll. They can now get future funding via bank loans. Interest rates are reasonable. The company has rapidly growing product divisions. And the future of the cable can be listed as "when" -- not "if".

Not only that; but Windtec has been successful with its business model in Europe, Japan, and now China, even though it was a cash-poor, 30-employee company. As was pointed out by one of the analysts on the conference call, imagine what that guy might be able to do when he's out selling with AMSC and their own cash seen to be sitting behind them.

AMSC already has offices in Beijing and Singapore; it sounds like they are going to let Windtec lead the charge into India. But the potential synergies are really great to think about, with the biggest possible synergies involving HTS products (of which there are several) and windmills.

Though he likes to get excited, I agree with Greg, the CEO: in a few years time, we could look back and consider this purchase a potential game-changer. The management teams must get along well together, too; there is obvious mutual respect between them.

I've gotten plenty of negative surprises the past year on a couple other of my investments (e.g, CPST, WPT.TO - all management related). Really nice to get a totally nice surprise like this from out of the blue.

jp
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