Hedge funds may trip REpower deal

NEW DELHI: The competing takeover bids of Suzlon Energy and Areva of France for Germany’s REpower Systems are set to face difficulties with the hedge funds that own shares in the German company unlikely to sell to the two companies at the current bid prices of e150 /share and e140 /share respectively. At present, Suzlon and Areva both hold 30% each in the company.

While the open offers from both the companies to REpower shareholders closes on May 25, sources say that unless something dramatic happens, neither of the two bidders will be able to garner enough shares to individually take control of the German company.

This is because hedge funds that own the majority of the nearly 40% shares are holding out for a better price than what is currently being offered. “The hedge funds have been raising the share price and trying to play both the bidders against each other,’’ said a source. The REpower scrip is currently trading at more than e160 , which is more than the current bid prices, but sources say that trading volumes are minimal. The Suzlon bid values REpower at e1.22 billion .

It is possible that the hedge funds may sell their shares at the last minute or that the bidders may raise their price. But sources say there is also an intriguing likelihood of both the rival bidders calling the bluff of the hedge funds and coming together to close them out.

When contacted, Suzlon chairman Tulsi Tanti told ET that at present the situation was volatile and clarity would be achieved only in the last few days before the deadline. “At present, three outcomes are possible. We get majority shareholding, Areva gets majority shareholding, or neither of us get majority. In each of these scenarios, Areva and us have to work together after May 25 in the interest of REpower shareholders. The picture will become clear only after the 25th,’’ he said. But he made it clear that the question for co-operation between Areva and Suzlon will arise only after May 25 and not before that.

I-banking sources say there have been instances in the past in Europe when rival bidders joined hands to prevent hedge funds from getting an exorbitant price. At a later stage, one of the bidders sold its shares to the other. “Such a model could be replicated in this case too,’’ say bankers. Mr Tanti said such a situation was unlikely, but his company would consider a proposal if it came from Areva. As things stand now, Areva holds 30.16% in Repower, while Suzlon and its partner Martifer own 30.91%.