The fate of Carpinteria-based Clipper Windpower and roughly 200 South Coast jobs hang in the balance after owner United Technologies Corp. abruptly disclosed plans to sell the turbine maker.
A top official for United Technologies Corp. called the 2010 acquisition of Clipper a “mistake” on a call with Wall Street analysts. Indeed, the Clipper acquisition evolved from a low-risk bet to a high-stakes gamble as hopes for wind mandates faded and costs soared as United Technologies tried to match arch-rival GE in the wind business.
Connecticut-based United Technologies is the name behind Pratt & Whitney jet engines and Sikorsky helicopters. Its purchase of Clipper came amid crippling warranty costs for cracked blades and a broken market for wind farm financing.
The defense giant paid about $318 million for Clipper in a two-stage deal two years ago. But on March 15 it put Clipper and a handful of other businesses up for sale to help finance its $16.5 billion acquisition of aircraft parts maker Goodrich. United Technologies said auctioning off non-core-businesses means less borrowing and issuing less stock to pay for Goodrich.
Clipper makes some of the world’s largest land-based wind energy turbines. Its founder, Jim Dehlsen, also founded the company that forms the basis for GE’s large wind turbine division.
Clipper is headquartered on the South Coast with about 200 employees in engineering and business development. A manufacturing plant in Cedar Rapids, Iowa, at one time had nearly 600 employees. United Technologies said 2011 revenue for Clipper was about $300 million.
Less than two years after investing in Clipper, United Technologies’ leaders have soured on the Carpinteria firm. In a conference call with investors on March 15, Gregory J. Hayes, United Tech’s chief finical officer, praised the other three business units being sold and said the company would not part with them unless it received a fair price.
“And then there’s Clipper,” Hayes said to audible groans from the audience. “All right, we all make mistakes. We bought into this business thinking there would be a renewable energy mandate in this country, and there has not been one. We went into this business thinking the growth we saw in the last five years would continue as the push for renewables in this country accelerated. In fact, that has not happened. The market, as everyone knows, has stagnated.”
Hayes went on to say that hydraulic fracturing, or “fracking,” and falling natural gas prices have made wind power less attractive than United Technologies expected two years ago.
“Furthermore, if we’re going to stay in this business, it requires significant additional investment. Those of you who follow Clipper know they make a very good machine for 2.5-megawatt clients,” Hayes told investors. “But where growth is going to come is in the higher megawatts, the five megawatts, and they’re going to be offshore.”
Retaining Clipper, Hayes said, would “require hundreds of millions of dollars of investment — and quite frankly, we’re not going to do it.”
Hayes’ comments stand in sharp contrast to United Technologies’ claims when it arrived on the South Coast. At the time, Clipper CEO Mauricio Quintana, a company veteran who was sent to run Clipper, told the Business Times the acquisition would have little affect on Clipper’s 200 South Coast employees.
“I don’t foresee anything changing,” Quintana said in October 2010. “United Technologies has acquired Clipper because it likes Clipper, because it wants to grow it, not because it wants to destroy it, for lack of a better word.”
A Clipper spokeswoman in Carpinteria did not return requests for comment. United Technologies also did not respond to a request for comment beyond the March 15 remarks.
Brian Langenberg, an analyst with Illinois-based Langenberg & Co. who follows the company, said the defense-industrial conglomerate likely realized it had invested too little, too late to become a successful competitor to firms such as General Electric in the wind energy space.
“You look at what you have, and you say, if I don’t really need this, I’m going to sell it — $300 million is not a big deal,” said Langenberg, who has a buy rating on United Technologies but does not own any shares. “They had just started to get into this. If it’s not really starting to go the right way, then it makes sense to get out right away.”
United Technologies purchased Clipper as the company reeled from slow turbine sales and high costs, some of which stemmed from the repair of cracked blades on its massive machines.
United Technologies first invested $206 million for a 49.5 percent stake in the turbine maker, with a stand-still provision preventing it from taking control until at least 2012. But also included in the deal was a trigger. If Clipper burned through three-quarters of United Technologies’ cash, the conglomerate had the right to buy Clipper. Less than a year later, Clipper tripped the trigger. United Technologies bought the remainder of the firm for $112 million.
What will become of Clipper’s hundreds of employees in Carpinteria is uncertain. Steve Gaines, dean of the Bren School of Environmental Science and Management at UC Santa Barbara, said many of the workers there likely have valuable skills and knowledge about the regulatory issues and tax advantages surrounding renewable energy. He said those skills would fit well with Santa Barbara’s reputation for business-environmental innovation if those workers stayed in the area.
“It seems like it’s a big loss if in fact you’ve lost all that talent,” Gaines said. But with the California’s greenhouse gas emissions rules, under AB 32 “really kicking in later this year, that kind of expertise in the local area would be a big benefit to the local communities of the Central Coast.”