Cash-Rich Total Makes $1.37 Billion Solar Plunge

French oil major Total SA (TOT, FP.FR) said it plans to acquire a 60% stake in SunPower Corp. (SPWRA, SPWRB), a deal that values the U.S.-based solar-panel maker at $2.3 billion.

Total, which focuses on the exploration and production of oil and natural gas, said it would pay $23.25 for each Class A and Class B share it intends to acquire. The offer price represents a 46% premium over Wednesday's closing price of SunPower's Class A shares. The investment is worth about $1.37 billion.

The deal signals growing confidence among conventional energy players that solar power is likely to become a viable energy source, despite its current small size. The global solar-panel market, worth about $71 billion in 2010, according to research firm Clean Edge, is widely expected to continue growing, driven by government policies favoring clean energy and lower manufacturing and development costs.

The deal also shows the continued financial muscle of conventional oil giants flush with cash thanks to triple-digit oil prices. A Total executive said Friday the company concluded a renewable energy investment like SunPower made greater sense in the current commercial climate than some conventional petroleum offerings that are based on current commodity prices.

The news boosted not only SunPower, which was up $5.58 or nearly 35% to $21.70 at midday, but also Norway's Renewable Energy Corp ASA (REC.OS) and Germany's Q-Cells SE (QCE.XE), among other solar equities. Total shares were up .15, or .35% to EUR43.16 at 1458GMT.

A Paris-based trader Friday said the generous premium valued the California company at $2.3 billion. "The price seems high for solar power," said the trader, who insisted on anonymity.

But Total Chief Financial Officer Patrick De la Chevardiere told financial analysts Friday that Total was "comfortable" with the price, especially compared with conventional oil and gas assets now on the market that assume that oil prices will stay today's current levels. By contrast, De la Chevardiere said he was "not comfortable" acquiring U.S. exploration and production assets that were priced on $120 a barrel oil.

Total Friday reported 51% rise in quarterly profits. De la Chevardiere also said the company might also boost its dividend depending on how oil prices stabilize.

Philippe Boisseau, head of Total's gas and power division, said that solar power will become a crucial energy source in Europe and North America and that Total intends to become a global leader in the solar industry.

"Energy demand will keep increasing and all energy sources will be needed," Boisseau said. However, oil and gas will remain Total's core businesses, he added.

Total plans to keep SunPower's management team in place and continue investing in the business, Boisseau said.

Total's acquisition of a majority stake in SunPower will allow the California company to "radically accelerate" its plans to expand manufacturing of solar panels and develop large solar farms, said SunPower Chief Executive Tom Werner. In addition to expanding its existing business, SunPower will work to commercialize thin-film solar-power technology that Total has developed and may use other materials made by Total in solar power generation, Werner said.

Werner would not say how much SunPower would expand its operations over the next few years, but said that Total and SunPower aim to be one of the world's top three solar energy companies over the next five to 10 years.

In February, SunPower reported 2010 net income of $179 million on revenue of $2.2 billion, up from a 2009 annual profit of $32.5 million on revenue of $1.5 billion.

SunPower said its deal with Total would likely lower its cost of capital and increase its access to uncollateralized debt financing. Some analysts have expressed concern about SunPower's cost structure relative to industry peers.

-By Geraldine Amiel, Cassandra Sweet and John Kell, Dow Jones Newswires; [phone]; 415-439-6468; [e-mail]; [e-mail]