By Eyk Henning and Christopher Alessi
FRANKFURT -- Siemens AG and Gamesa Corporacion Tecnologica SA
are close to announcing an anticipated deal to combine their
wind-power activities and create the world's largest wind turbine
maker, according to people familiar with the matter.
A deal, which could be announced as early as this week according
to the people, would end months of uncertainty around the
transaction. However, an announcement could be delayed, the people
said.
Siemens and Gamesa in February agreed in principle to combine
their wind activities, but the tie-up hit a snag because Gamesa
needed to renegotiate elements of an offshore wind joint venture,
dubbed Adwen, with French nuclear engineering company Areva SA.
Those issues have been resolved in principle, the people said.
Siemens and Gamesa would likely seek a potential buyer for Adwen
as part of that agreement, these sources said, adding that Adwen
would be integrated into the combined wind activities of Siemens
and Gamesa if no buyer is found.
Areva on Wednesday separately announced plans to split the state
controlled nuclear-engineering group in three as part of a
restructuring plan to raise as much as EUR8 billion ($8.97
billion). Chief Financial Officer Stéphane Lhopiteau, on a
conference call with reporters, said Areva plans to sell its
renewable energy assets gradually. Areva also authorized Siemens to
have access to information connected with Adwen after it ends talks
with Gamesa, Mr. Lhopiteau added.
The Siemens-Gamesa deal structure could see Siemens transfer its
offshore wind activities to the Spanish company in exchange for a
stake of about 60% in a future enlarged business, people familiar
with the matter said. These sources said the potential combined
entity could attain annual savings of around EUR200 million.
The expanded entity would likely have a market capitalization of
roughly EUR10 billion, remain listed on the Madrid Stock Exchange
and be led by Gamesa Chairman Ignacio Martin, the people said.
A combined wind business could benefit from Siemens's financial
muscle" to "more comfortably" target investments in high-growth
markets like India or China without needing to seek financing from
banks or the capital markets, said Ángel Pérez, an analyst with
Spanish brokerage firm Renta 4.
Any transaction would need to be approved by Gamesa
shareholders. Gamesa shares were up 4.3% in afternoon trading, at
EUR17.18 a share, while shares of Siemens were up 2%, at EUR91.98 a
share.
"Negotiations between Gamesa and Siemens are still open. We
haven't made any decision nor materialized any agreement so far,"
Gamesa said in a statement Wednesday.
Siemens declined to comment.
The deal would create a new global market leader by capacity,
ahead of China's Xinjiang Goldwind Science & Technology Co.,
Denmark's Vestas Wind Systems A/S and General Electric Co.,
according to FTI Consulting.
Siemens' wind division, which had almost EUR6 billion in revenue
in 2015, manufactures and installs wind turbines for on- and
offshore farms. But the business is largely focused on the offshore
market -- where it has an ample order backlog for turbines -- while
missing onshore growth opportunities.
"Siemens offshore [wind business] is a world market leader, but
offshore alone is not enough to become profitable," said Christoph
Niesel, a portfolio manager at Union Investment, a Siemens'
investor. Mr. Niesel said the deal with Gamesa would allow Siemens
to fill this hole in the business.
Profitability at the wind division has lagged behind that of
other divisions over recent years and was held back in the last
fiscal year in part because of tougher offshore competition that
translated into lower margins, Siemens has said.
At the same time, the wind unit has suffered because of
reshuffles and mismanagement, according to analysts. Shoring up the
business would boost income in a growth area and help Siemens fend
off increasing competition, analysts say.
Siemens Chief Executive Joe Kaeser appears to agree. "The future
belongs to renewable energies. That's why we will be making further
investments in our wind business," Mr. Kaeser said at Siemens'
shareholders meeting in late January, just days before Gamesa
revealed it was in talks with Siemens on a tie-up.
The deal would be a shift in direction for Mr. Kaeser. Since
taking the top spot at Siemens in 2013, he has invested heavily in
the oil-and-gas unit, acquiring the energy operations of the U.K.'s
Rolls-Royce Holdings PLC and U.S.-based oil-equipment maker
Dresser-Rand Group Inc.
The Dresser acquisition, valued at $7.6 billion, came just as
global oil prices started to plunge last year, calling into
question Mr. Kaeser's efforts to reshape the company around
conventional energy operations.
"Fossil power is starting to die. Therefore, you need to
diversify," Mr. Niesel said. He added that what is "sexy with wind"
right now is its profit potential through maintenance. "We are at
the head of a cycle where you need more servicing of the installed
base," he said.
The deal with Gamesa would let Siemens expand its global wind
footprint just as competition in the industry is escalating.
Siemens' primary global rival, General Electric, in 2014 beat
Siemens in a bidding war for the energy operations of France's
Alstom, which included its onshore wind business and a joint
venture for offshore wind. That deal made General Electric a
greater force in the European wind market, increasing its market
presence by 50%, the company has said. Before the transaction, GE
Wind was primarily active in the U.S., Canada and Brazil.
Gamesa's wind-turbine business would give Siemens the top
position in India, Brazil, Mexico and Egypt for turbines, according
to FTI. In June last year, Siemens signed a EUR8 billion deal --
the largest in its history -- to provide Egypt with
natural-gas-fired power plants and wind power installations,
including up to 600 wind turbines.
Gamesa is also the No. 1 foreign turbine maker in China, which
accounted for nearly half of new installations world-wide last
year, or 30,500 megawatt, data from the Global Wind Energy Council
show. China holds about one third of world wind capacity, followed
by the U.S. with 17% and Germany with over 10%.
Siemens's tie-up with Gamesa is the latest step in the global
wind turbine industry's consolidation. In October, German turbine
maker Nordex SE said it would purchase the wind operations of
Spain's Acciona SA for cash and shares amounting to EUR785 million.
The unit has turbine plants in Spain, the U.S. and Brazil.
The industry has been preparing for "slower growth and more
intense competition with a focus to reduce costs of turbines, to
reduce the cost of energy for wind and to position for growth in
emerging markets," according to analysts at J.P. Morgan.
--Monica Houston-Waesch, Carlos López Perea and Inti Landauro
contributed to this article.
Write to Eyk Henning at eyk.henning@wsj.com and Christopher
Alessi at christopher.alessi@wsj.com
(END) Dow Jones Newswires
June 15, 2016 12:56 ET (16:56 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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