Going Private Is A Good Deal For Trina Solar Shareholders
Trina Solar (NYSE:TSL), China’s largest solar panel manufacturer, announced on Monday that it had entered into a definitive agreement to go private via a $1.1 billion all-cash transaction that would see its founding Chairman and a consortium of investors take over the company. The deal, which is expected to close in Q1 2017, was first proposed in December 2015. We believe that going private would allow Trina’s management more headroom to formulate a long-term strategy amid increasing industry headwinds, while giving shareholders a sizable premium over the firm’s current stock price. [1]
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An Attractive Offer For Stockholders
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Although Trina Solar has been faring reasonably well over the last two years, posting solid shipments (86% growth between 2013 and 2015) and higher earnings, the firm’s stock has had a mixed performance, remaining almost flat between August 2013 and 2016, after testing highs of about $18 in early 2014. The stock traded at a conservative 10x 2017 earnings before the deal was announced. Now, the deal should unlock meaningful value for Trina’s shareholders, given that cash payout per American depository share (ADS) stands at $11.60, implying a premium of about 40% over the value of Trina’s ADS the last trading day before the deal was announced and a premium of 21% over the stock price when the proposal was first made in December 11, 2015. The offer also looks attractive relative to our fair value estimate of $10 per ADS for Trina Solar. While the transaction will require the approval of at least two-thirds of Trina Solar’s voting shareholders, we believe that it is very likely to go through.
The move will allow Trina’s management a lot more flexibility in running its business without the scrutiny of the markets at a time when the solar industry faces growing challenges. Solar installations in China are projected to fall meaningfully during the second half of 2016 and panel prices are also projected to decline as more global manufacturing capacity comes online. These factors are likely to impact Chinese solar firms such as Trina the most, given their large exposure to the domestic market and weaker product differentiation.
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