JA Solar (JASO) Signs $362M Agreement, Set To Go Private

JA Solar Holdings, Co., Ltd. (NASDAQ:JASO) has signed a merger agreement with JASO Holdings Limited (Holdco), JASO Parent Limited (Parent) — a wholly owned subsidiary of Holdco — and JASO Acquisition Limited (Merger Sub), a wholly owned subsidiary of Parent.

Per the agreement, an investor consortium will purchase JA Solar in an all-cash transaction, thereby translating into an equity value of approximately $362.1 million.

Details of the Agreement

The investor group stated that it will pay $1.51 per share in cash without interest to holders of ordinary shares of JA Solar. Holders of the American depositary shares (ADS), which are equivalent to five ordinary shares, will be paid $7.55 in cash without interest.

On November 17, JA Solar announced that the agreed consideration stands at a premium of 18.2% to the closing price of the company’s ADSs on Jun 5, 2017 — the last trading day before the company revealed its receipt of a revised “going-private” proposal. The consideration is also at a premium of 17.2% to the average closing price of JA Solar’s ADSs during the three-month period before its receipt of a revised “going-private” proposal.

We note that the investor group is headed by JA Solar’s chief executive — Baofang Jin — and Jinglong, a British Virgin Islands company of which Jin is the sole director. In addition, Chin Tien Huang, Chi Fung Wong and Pak Wai Wong are the other shareholders, who will roll over their shares in JA Solar in this latest transaction. Jointly, the group and the rollover stockholders hold 25.7% of the voting rights in JA Solar.

The group intends to fund the merger with a combination of debt and equity. In fact, it has already given an executed debt commitment letter to JA Solar. Per this letter, CSI Finance Limited, Credit Suisse (SIX:CSGN) AG, Singapore Branch and few other parties will provide a loan facility worth $160 million to fund the alliance, subject to the terms and conditions.

The transaction is expected to close in the first quarter of 2018. The closure will be based on customary closing conditions that comprise the approval of the merger agreement by the affirmative vote of shareholders representing at least two-thirds of the voting power of the shareholders present and voting.

Once the transaction is complete, JA Solar will become a privately-owned company and its ADSs will no longer be listed on the Nasdaq Global Select Market.

Another Peer Had Gone Private

In March 2017, another Chinese photovoltaic modules maker, Trina Solar Ltd, officially became private after completing its merger with Red Viburnum Company Limited — a wholly-owned subsidiary of Fortune Solar Holdings Limited. Per the agreement, signed on Aug 1, 2016, Trina Solar ceased to be a publicly traded company and became a wholly-owned subsidiary of Fortune Solar.

Our View

Chinese government has recently issued guidelines for boosting private investment in manufacturing including enhancement of financial support to private firms. In particular, the government is pushing private firms to invest in infrastructure projects that comprise solar energy products. This factor may have acted as a primary driving force behind JA Solar’s decision of becoming a private firm.

Moreover, a publicly trading company has to bear huge regulatory as well as procedural cost to maintain all the timely filings of financial reports. Therefore, becoming a private firm means less regulatory and procedural costs, which might have been another reason why JA Solar intends to delist itself from the share market.

Price Movement

Shares of JA Solar have rallied 56.5% on a year-to-date basis, outperforming the broader industry’s gain of 51.1%. This could be because the company stands to gain from its geographically advantageous position in spite of China’s trade war with the United States. In fact, its focus on widening its geographical customer base has resulted in incremental international sales.

Furthermore, JA Solar’s performance is in line with other majors in the same space like First Solar Inc. (NASDAQ:FSLR) , which also outperformed the broader industry.

Zacks Rank and Key Picks

JA Solar holds a Zacks Rank #2 (Buy). Some other better-ranked stocks in the space include SolarEdge Technologies, Inc. (NASDAQ:SEDG) and SunPower Corporation (NASDAQ:SPWR) . While SolarEdge Technologies sports a Zacks Rank #1 (Strong Buy), SunPower carries the same bullish rank as JA Solar. You can see the complete list of today’s Zacks #1 Rank stocks here

SolarEdge Technologies delivered a positive earnings surprise of 20% in the third quarter. Its Zacks Consensus Estimate for 2017 moved up nearly 12.2% to $2.11 per share in the last 30 days.

SunPower pulled off a positive earnings surprise of 158.33% in the third quarter. Its Zacks Consensus Estimate for fourth quarter of 2017 moved up nearly 45.5% to 16 cents per share in the last 30 days.

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