SWISS industrial group ABB is to buy US solar energy company Power-One Inc for about US$1 billion, betting that growth in emerging markets will revive a sector ravaged by overcapacity and weakening demand in recession-hit Europe.

The world's biggest supplier of industrial motors and power grids said yesterday it had agreed to pay US$6.35 per share in cash for Power-One, the second-largest maker of solar inverters that allow solar power to be fed into grids.

The offer price is 57 percent above Power-One's closing price on Friday, boosted by US$266 million in net cash held by debt-free Power-One. Stripping out its cash pile, Power-One's enterprise value stands at US$762 million, valuing the bid at a more modest 6.4 times 2012 core earnings.

As solar power gets closer to competing with conventional forms of energy such as gas and coal, demand for solar panels that harness the sun's energy is rising.

The same goes for solar inverters, which are needed to feed that power into large electricity grids from commercial solar panel installations and smaller units on factories and homes.

"We consider the acquisition of Power-One as a smart strategic move for ABB to broaden its solar product portfolio at the right time," Vontobel analysts said.

The solar inverters business is one of the last profitable parts of the solar value chain - mainly due to its relatively complex technology - while makers of cells and panels have suffered massively from the fact that their products are easy to replicate.

Peers like Germany's Siemens and Bosch recently ended ventures in the solar industry after oversupply, weak economies and a cut in government subsidies triggered a collapse in demand for solar panels and prices slumped, leading to a wave of insolvencies in the industry.

Even makers of the solar inverters have suffered.

Germany's SMA Solar, the world's biggest maker of the components, reported a 58 percent drop in 2012 operating earnings last month and said sustained lower prices from competitors could severely impair its business.

However, ABB believes the solar market is set to grow its way out of overcapacity as electricity costs rise and falling prices of solar power systems make it a more competitive source of energy.

ABB is buying into solar energy now because it sees a shift in demand towards emerging markets such as China and the Middle East, said Ulrich Spiesshofer, head of ABB Discrete and Motion, the business that includes ABB's solar activities.