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Vestas Considers Options Pending Mitsubishi Talks

Planning If Talks Fall Through

Written by Swagato Chakravorty
Posted September 14, 2012

Vestas Wind Systems A/S (CPH: VWS) may be mulling over possible options should ongoing talks with Mitsubishi Heavy Industries Ltd. (TYO: 7011), regarding a possible strategic cooperation, break down. Current possibilities include selling shares to Vestas’s existing investors.

The Denmark-based company could raise a possible 500 million euros, or $646 million, from a rights offering, according to anonymous sources who spoke to Bloomberg. Such matters, of course, are entirely dependent on the final outcome of the Mitsubishi talks. Vestas didn’t comment.

Rising costs for the V112 turbine development program combined with dropping government subsidy levels have been major problems for Vestas recently; back in July, the company decided to defer testing its financial commitments—never a good sign.

However, by deferring, Vestas was able to draw on current credit lines even as its cash flow steadily dried up. Currently, Vestas has credit lines amounting to 1.3 billion euros ($1.7 billion) with various banks including Commerzbank AG (ETR: CBK), Unicredit SpA (BIT: UCG), Nordea Bank AB (STO: NDA-SEK), SEB AB, DNB ASA (PINK: DNBHY), and HSBC Holdings Plc (NYSE: HBC).

From Bloomberg:

“If they raise equity, they should do a big one in order to get the balance sheet concerns out of the way,” Andreas Willi, an analyst at JPMorgan Chase & Co said in a phone interview. “If they deliver on their free cash flow promise of 1 billion euros for the fourth quarter, then a 500 million rights issue may be enough.”

Vestas announced the Mitsubishi discussions on August 27. On Thursday, Vestas shares dropped by 13.4 percent; that’s the largest single-day drop in seven months. Although shares had risen 38 percent between August 27 and September 10, they dropped by 26 percent overall in just the past three days. Today, they were back up 5.67% to $36.51.

This year, Vestas has also slashed 3,700 jobs over two rounds of cuts. That’s nearly one-sixth of its entire workforce. In addition, the company is restructuring to try and lower fixed costs by more than 250 million euros ($327 million).

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