Hoku's Polysilicon Operation Prime for Takeover?

Concerns about climate change, energy security and ever-shrinking conventional resources are very much on everyone's mind these days. Policymakers' shifting commitment to embracing renewable technology bodes well for the future of alternatives. So despite the still-sagging economy, green players are jockeying for dominance in the world of New Energy.
 
A company that could find itself an acquisition target of one of these ambitious concerns is the polysilicon arm of Honolulu-based Hoku Scientific Inc. (Nasdaq: HOKU), a once compelling small-cap growth story. The diversified cleanteach outfit operates in three segments: Hoku Solar is engaged in the market, sale and installation of photovoltaic systems in Hawaii; Hoku Fuel Cells develops proprietary hydrogen fuel cell components; and its Hoku Materials subsidiary produces polysilicon, the raw material used to make solar panels.

Over the years Hoku Scientific has forged strategic relationships with some big names—like Sanyo Electric Co. Ltd. (OTC: SANYY), Nissan Motor Co. Ltd. (Nasdaq: NSANY), and the United States Navy—and its solar energy wing currently counts China's Suntech Power Holdings (NYSE: STP) among its customers. But Hoku has seen better times. The corporation had previously shown much promise, with its stock at one point shooting up more than 225% in a matter of months. Now, shares seem to lose value with each passing day, and Hoku Materials, which is currently building a 4,000 metric ton polysilicon plant in Pocatello, Idaho, is struggling with a lack of funding that has left the segment's future in question.

In the wake of a disappointing quarter with revenue losses mostly ties to the falling fortunes of its polysilicon unit, Hoku is considering all possibilities to come up with the remaining $106 million to complete its $390 million plant. While weighing its options to raise the cash million needed to keep the project afloat, the firm has slowed down construction on the facility to buy time.

One possible move being mulled over is a merger or sale of the division. To that end, Hoku has put Germany's Deutsche Bank Securities (NYSE: DB) on retainer. The Mergers and Acquisitions group of the financial institution's Global Banking division has vast experience helping troubled firms find compatible partners and purchasers. Any number of utility or renewable technology giants could be interested purchasing the company (several major candidates have ample cash reserves that could be used to buy their way into new markets).

It's yet to be seen if strong competition and ongoing legislative changes in the American energy landscape will set the stage for Hoku Materials to be snapped up.

Investors should closely monitor the situation for potentially market-moving news.