When a U.S. court ruled last week that German firm SolarWorld couldn’t invoke European cartel law to avoid paying hundreds of millions of dollars to a U.S. supplier, the potential impact didn’t sink in right away.
But by Monday, growing numbers of SolarWorld investors were beginning to grasp the ruling’s implications. As a result, Europe’s biggest solar panel maker lost half its value within one hour and closed the day 26 percent down. On Tuesday the spiral continued.
The chance that SolarWorld could lose the long-running dispute is now far greater. The U.S. court has removed its chief argument.
And it’s not just any old legal dispute. Michigan-based silicon supplier, Hemlock Semiconductor, sued SolarWorld in 2013 for breach of contract and sought $800 million in damages. For Bonn-based SolarWorld — which claims revenues of €575 million, or about $630 million — the potential cost threatens the company’s very existence.
The chance that SolarWorld could lose the long-running dispute is now far greater. The U.S. District Court in Michigan has in practice removed its chief argument.
“SolarWorld has always invoked the cartel law as its core argument,” said Arash Roshan Zamir, an analyst at Warburg Research. “Now that is gone.”
Germany’s last major solar panel manufacturer continues to maintain it has other far-reaching arguments to bring forward in trial, but has so far been scanty on the details.
“We have no indications of how SolarWorld proposes to continue its defense and whether they have arguments of equal value,” said Mr. Roshan Zamir.
SolarWorld, meantime, dismisses media reports on the latest development, which first appeared last week in the Wall Street Journal, as “misleading.” “The company sees no increase in the risk since the beginning of proceedings,” it said in a statement.
For now, the board member in charge of finances, Philip Koecke, has to make countless telephone calls trying to reassure nervous investors.
But shareholders are wary. SolarWorld has made no balance sheet provisions for “unfavorable contracts,” according to its annual report.
The German corporate governance expert, Christian Strenger, said this amounts to negligence and raised the issue at SolarWorld’s annual general meeting last May. He upbraided the company’s chief, Frank Asbeck, ”for having few convincing arguments” for failing to make provisions for the legal disputes.
SolarWorld, on the other hand, maintains the risk was “continually taken into account.”
The company is working on the asumption that it will be able to reach an out-of-court settlement with Hemlock Semiconductor, as it has done with all other silicon suppliers.
Just last year, SolarWorld reached an agreement with the Munich-based chemical company, Wacker Chemie, for damages in the double-digit millions. According to its annual report, SolarWorld has made adjustments of around €106 million since 2013, in connection with newly regulated silicon supply contracts.
But even if SolarWorld settles with Hemlock out of court, the financial outlook is still extremely poor. At the end of June, the company presided over liquid assets of €141 million, or $153 million.
Moreover, Mr. Asbeck recently conceded there would not be a turnaround this year. In other words, despite all of his claims to the contrary, SolarWorld will again lose money in 2015.
Mr. Asbeck founded SolarWorld in 1998 and profited for years from generous subsidies paid for solar and wind power in Germany. At the peak of the solar boom SolarWorld was worth about €1.5 billion.
But increasing competition from Asia and a reduction in subsidies saw the company fall from grace. In 2012, the one-time showpiece enterprise fell deeply into the red. Only because shareholders waived 95 percent of their capital was Mr. Asbeck able to save his company.
Now once again, because of the $800 million lawsuit in the United States, Mr. Asbeck is left to fear for his life’s work. His investors share his concerns.
Franz Hubik writes for Handelsblatt and Wirtschaftswoche. To contact the author: firstname.lastname@example.org