JA Solar boosts wafer capacity with Solar Silicon Valley buy

JA Solar Holdings Co. Ltd has entered into a definitive agreement to acquire 100 percent ownership interest in Silver Age Holdings Ltd. With the acquisition, JA Solar will also acquire Solar Silicon Valley Electronic Science and Technology Co. Ltd, a China-based solar wafer supplier owned by Silver Age.

The transaction values Solar Silicon Valley at approximately $180 million. At the time of closing, JA Solar will issue 30.901 million ordinary shares priced at $5.825 per share. This will represent the 45-day volume-weighted average price of JA Solar's American Depository Shares (ADSs) trading on the NASDAQ Global Market and approximately a five percent premium to the last closing price of the ADSs prior to the announcement of the acquisition. Each of JA Solar's ADS represents one ordinary share. The consideration for the acquisition represents approximately 2.6 times the audited net income of Solar Silicon Valley for 2010.

Solar Silicon Valley operates a wafer production facility in the Yanjiao Economic & Technology Development Zone in Langfang City, Hebei Province, China. The annual production capacity of the fab is 485MW. Solar Silicon Valley also produces quartz crucibles, a key consumable material used in the solar manufacturing industry. Silver Age Holdings Ltd is 70 percent owned by Jinglong Group, a company controlled by JA Solar's chairman, Baofang Jin, and 30 percent owned by an independent third party shareholder.

"This agreement represents another important step in JA Solar's strategy of optimizing our cost structure through selective vertical integration," commented Fang Peng, CEO of JA Solar. "In today's solar market, it is essential for producers to improve costs while maintaining a relentless focus on technology and product quality. By boosting JA Solar's internal wafer capacity through this acquisition, we expect to achieve greater economies of scale and improve the company's profitability. Furthermore, Solar Silicon Valley has key technologies which can be leveraged to provide superior quality wafer substrates for our high-efficiency solar cell products. As a low cost leader in the solar industry, we expect that this transaction will enhance JA Solar's leadership position and enable us to meet strong global demand for our high-quality, high-efficiency solar products."

Upon completion of the transaction, JA Solar's internal wafer capacity will increase approximately 785MW, ensuring a stable supply of low-cost wafers. As wafer costs constitute a significant part of JA Solar's total cost of manufacturing solar cells, enhanced internal wafer capacity will allow JA Solar to improve gross margins and benefit from vertical integration. 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.

The acquisition is subject to customary closing conditions and Chinese regulatory approvals, and is expected to close in the third quarter of 2011.