Suntech Power Shares Jumped: What You Need to Know
Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of solar manufacturer Suntech Power (NYS: STP) jumped 10% today on rumors of a potential buyout from LG Electronics.
So what: Before the rumor of a potential buyout even got legs LG Electronics shot it down. A report from Reuters says the company considered buying Suntech but decided not to because of weak earnings and declining conditions in the solar industry.
Now what: The rumor is almost laughable, because LG would have to assume not only $766 million in long-term debt, but also $1.7 billion in short-term borrowings that the Chinese government has handed Suntech. It isn't likely that a South Korean company would get the same easy money as Suntech did as an independent company.
With the terrible balance sheet in mind, I have to wonder why anyone would want to make an offer, considering that competitors are dumping product and margins are likely to shrink again this quarter. I've put Suntech on the top of my list of potential failures, something that may have already happened if it wasn't for easy funding from state-run Chinese banks.
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At the time this article was published Fool contributor Travis Hoium has no position in any company mentioned. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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