Shell Linked to £2bn Takeover of Vestas
Manchester, United Kingdom February 24, 2006

Shares in Vestas rise 6% on rumours of symbolic step

By Terry Macalister, The Guardian

The oil major Shell was linked yesterday to a possible $3.5bn (£2bn) takeover of a leading wind turbine manufacturer, adding to the excitement around the alternative energy sector. The value of Vestas rose 6% on the Copenhagen stock market amid mounting expectation that a major oil group could make a symbolically important move into "green" technology. Shell declined to comment.

There has been a massive surge of City interest in what has been seen until recently as a fringe part of global stock markets, helped by the high profile given to the government's energy review.

The latest green company admitted to the London market yesterday, Econergy, saw its shares rise 11% within hours. A day earlier, another company, Ceramic Fuel Cells, announced plans to list its shares and raise cash for new factories, probably in the north of England. Shell, which made £13bn of profits last year, is already involved in some alternative energy projects but has so far only spent a relatively paltry $1bn in a range of small projects in areas such as wind, biofuels and solar.

The Anglo-Dutch group is using Vestas to provide turbines for an offshore wind scheme in the Netherlands as part of plans to increase its wind energy capacity from 350 megawatts to 500MW by 2007.

Shell is also planning to construct a £1.5bn wind farm in the south-east of England and has hopes of building others as far afield as China. But a move to buy Vestas would underline its green energy credentials and show a determination to be at the heart of the wind business, seen by British politicians as the most promising of the new energy sources.

A Shell spokesman refused to give any guidance on whether it was interested or not in the Danish wind firm. "We don't comment on market rumours," he said.

Analysts said it would be a good time to buy Vestas, given that its share price was hit by a profit warning before Christmas. There has been previous speculation that industrial predators such as Siemens or GE might be tempted to make a takeover move.

Mainstream energy analysts such as Bruce Evers at Investec Securities would not rule out a move by Shell but believed the returns from alternative energy schemes would be unsatisfactory for traditional shareholders.

"Shell is having trouble replenishing its oil reserves without getting involved in a sideshow such as this. Wind farms, fuel cells and the like is pretty tiny stuff when you look at Shell's quarterly profits from oil and gas, but I would not put a takeover past it," he said.

The oil industry is awash with money from historically high crude prices, which has attracted criticism. A bigger move into the wind sector would barely dent cash reserves and would improve its image with environmentalists who have been screaming for big oil majors to do more.

In November its rival BP launched its own alternative energy division and said it would invest up to $8bn over the next 10 years creating a low-carbon power business. BP intends to produce annual revenues of $6bn from this new business and is planning hydrogen plants in Scotland and California.

Possible diversification moves by Shell brought back bad memories for some oil industry experts. They remembered another time of very high oil prices in the past when Mobil - now ExxonMobil - bought the retail chain Montgomery Ward and BP had a meat business in the US.

But the purchase of Vestas by Shell or another mainstream industrial group would give further credibility to those alternative energy companies who have been beating their way to the stock market in Britain.

Econergy and Ceramic Fuel Cells join about 20 others in a growing alternative energy sector, which is estimated to be worth, in total, £1bn by the end of last year. Their value is estimated to have risen a further 30%, partly on the back of renewed interest in alternative technology following the government's energy review into the future of Britain's power needs.

But there are many uncertainties surrounding the sector, not least whether Tony Blair will, as expected, opt for a new generation of nuclear power stations. That could suck money away from alternative energy projects and companies, green supporters fear.

Guardian Unlimited © Guardian Newspapers Limited 2006