(JASO) JA Solar Holdings to Buy Silver Age Holdings

JA Solar Holdings Co., Ltd. (JASO) has entered into a definitive agreement to acquire 100% ownership interest in Silver Age Holdings Limited for $180 million in stock. The acquisition aims to increase production of a key panel component.

As consideration, JA Solar will issue 30.901 million ordinary shares at a price of US$5.825 per share. This represents the 45-day volume-weighted average price of JA Solar’s American Depositary Shares (‘ADS’) trading on the NASDAQ Global Market and approximately a 5% premium to the last closing price of the ADSs prior to this announcement. Each ADS of JA Solar represents one ordinary share.

Silver Age Holdings Limited is a British Virgin Islands company that owns 100% of Solar Silicon Valley Electronic Science and Technology Co., Ltd. (‘Solar Silicon Valley’). Silver Age Holdings Limited is 70% owned by Jinglong Group and the remaining 30% owned by an independent third party shareholder.

Located in the Yanjiao Economic & Technology Development Zone in Langfang City, Hebei Province, Solar Silicon Valley operates a wafer production facility with an annual production capacity of 485MW. Solar Silicon Valley also manufactures quartz crucibles and its cutting-edge technology can be used to provide high quality wafer substrates for JA Solar’s own high-efficiency solar cell products. The consideration for acquisition is approximately 2.6 times the audited net income of Solar Silicon Valley for 2010.

The transaction will help JA Solar in achieving its objective of optimizing its cost structure through selective vertical integration. The acquisition would guarantee a stable supply of low-cost wafers increasing the company’s internal wafer capacity to approximately 785MW. This enhanced internal wafer capacity will allow the company to improve gross margins and benefit from vertical integration as wafer costs constitute a significant part of its total cost of manufacturing solar cells.

The agreement is expected to improve JA Solar’s leadership position and enable it to meet strong global demand for high-quality and high-efficiency solar products. JA Solar and Solar Silicon Valley are also expected to benefit from synergies arising from economies of scale, raw material sourcing efficiencies as well as operational optimization.

JA Solar established an independent committee of directors to evaluate and negotiate this transaction with the shareholders of Silver Age Holdings Limited. The Committee and the board of directors of JA Solar have unanimously approved the transaction. The acquisition is subject to customary closing conditions and Chinese regulatory approvals, and is expected to close in the third quarter of 2011. The company presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.

Though JA Solar is regarded as one of the most cost-efficient solar producers with a geographically-diversified customer base, its near-term performance could be impacted by apprehensions over the tepid module demand in Europe, changes in Italian solar policy, rising competition, wafer dependency, and the oversupply of solar cells in the market.

JA Solar Holdings is a leading manufacturer of high-performance solar power products. The company sells its products to solar manufacturers worldwide, who assemble and integrate solar cells into modules and systems that convert sunlight into electricity for residential, commercial, and utility-scale power generation. The company mainly competes with Suntech Power Holdings Co. Ltd. (STP).

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