Cohocton Wind Watch: Clipper future uncertain as brand is sold again
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Friday, August 24, 2012

Clipper future uncertain as brand is sold again

Less than two years after US conglomerate United Technologies Corp (UTC) bought Clipper Windpower, it has sold the wind-turbine manufacturer on to private-equity company Platinum Equity. Now the question is whether Platinum will sell off Clipper's assets or try to turn around the ailing wind company.

Mark Barnhill, a partner at Platinum, said: "The Platinum transition team's focus is on completing the carve-out of the company and establishing it as a stand-alone business."

Platinum's first move came on 20 August, when Clipper said it was cutting its workforce from 550 to 376 but would continue to operate its production and assembly plant in Cedar Rapids, Iowa. At its peak, Clipper employed 750 people globally. In its brief statement last month, UTC only said it had "completed the divestiture of its Clipper Windpower unit to Platinum Equity" following its announcement in March that it was moving Clipper into discontinued operations before trying to sell it. UTC was refocusing on its core expertise, including aerospace, and raising money for its $16.5 billion purchase of aerospace supplier Goodrich.

In private-equity (PE) transactions, an owner may simply pay a PE firm — a longer-term investment manager — to take over an unwanted asset. Alternatively, the owner could retain an equity stake and pay the PE company to improve the margins of the asset with a view to selling it off in an initial public offering, typically in three to five years. A PE firm can also turn around an ailing asset by selling off any parts that retain value. Or the PE manager could "fix up" the asset by reducing overheads —including cutting jobs — and restructuring it, for example by setting new corporate goals.

Renwables mandate

It is clear that the goals are likely to be different to what UTC started with in 2010. In March, its chief financial officer Greg Hayes told Wall Street analysts that UTC's decision to shed Clipper was easy: "We've gone into this business with the thought that there was going be a renewable-energy mandate in this country and there has not been one." UTC officials had also cited the sagging global wind market and competition from China.

Headquartered in Connecticut, UTC bought Clipper in 2010 in two transactions for a total of $385 million. The company had cited strong growth in the wind market. Not long before the purchase, Clipper had warned of "significant doubt of the company's ability to continue as a going concern" if it could not raise more financing. Its fleet of flagship Liberty turbines has faced well-known problems such as faulty gearboxes and cracked blades.

Good riddance

Conventional stock analysts have long been sceptical of UTC's foray into renewables purchase and have welcomed the decision to sell both Clipper and its fuel-cell business. Asked about Clipper, Rick Whittington, an aerospace analyst at investment firm Drexel Hamilton, said "good riddance" to a "misbegotten acquisition". He added: "UTC got caught up in the [wind power] gold rush , or should I say blood rush. UTC is an engineering company and they figured they could engineer anything — and they got burned."

Operations and maintenance

Philip Totaro, Clipper's former head of intellectual property (IP) and competitive assessment, said Clipper's development assets, service business, and patents and IP have some value. Amy Grace , a wind analyst at Bloomberg New Energy Finance (BNEF), added that a PE purchase of Clipper makes sense and that the company's real value lies in operations and maintenance (O&M) because of the Clipper turbines already installed. An estimated 5GW of Clipper turbines have been deployed globally.

But Grace said that Clipper's technology is considered "outdated" and would be a hard sell. The company's 10MW Britannia offshore turbine — which was shelved before any were installed — would face strong competition from heavyweights such as Siemens and Vestas. Daniel Holland, a financial analyst at investment research firm Morngingstar, agreed that Clipper's future O&M is a key asset. He warned that the current wind market would make any turbine sales very difficult for a new owner.

Dan Shreve, a partner at Make Consulting, cautioned that Clipper's O&M business will depend on how much it keeps control of its installed base of turbines. And he questioned what will happen when Clipper's fleet emerges from warranty — and have to go through end-of-warranty inspections —which could undercut the value of its O&M business. He described Clipper's specialised test stand for gearboxes in the US as having a "small value" for a purchaser.

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