Siemens, Gamesa to become worlds largest windfarm business

Siemens and Spain`s Gamesa agreed on Friday to combine assets to create the world`s biggest builder of windfarms, with the German company paying 1 billion euros ($1.1 billion) cash to Gamesa`s shareholders to take a majority stake.

The new group, which will have a market capitalisation of around 10 billion euros according to analysts, would bring together Siemens` strength in offshore wind power and Gamesa`s leading position in emerging markets.

Months in the making, the joint venture will overtake Denmark`s Vestas to become the world`s largest wind farm manufacturer by market share, operating in the mature North American and European markets and fast-growing markets such as India, Mexico and Brazil. Vestas market value is 12.6 billion euros.

Engineering company Siemens, which has struggled to make its wind turbine business profitable, will take a 59 % stake in the company but not have a majority on the board, Gamesa said in a statement to Spain`s market regulator.

In return for taking the leading role, Siemens will pay Gamesa`s current shareholders, which include Spanish utility firm Iberdrola, 1 billion euros in cash in the form of an extraordinary dividend.

The businesses will be combined within Gamesa, which will retain its Madrid listing, and be still led by Chief Executive Ignacio Martin. The Spanish group is creating new shares to be offered to Siemens, whose other products include trains, power network equipment and medical body scanners.

Cost savings and benefits from the new business, which will be operational by the end of the first quarter of next year, will be worth 230 million euros of earnings before interest and taxes (EBIT) within four years, Gamesa said.

The combined group`s order portfolio would be worth some 20 billion euros, it added.

Siemens is the European market leader in the offshore wind market but is relatively weak onshore. Gamesa, which has limited offshore business, is strong in emerging markets, notably Latin America, where it expanded when the Spanish government cut subsidies to clean energy producers in 2013.

Shares in Gamesa, which were suspended from trading after the initial announcement, closed up 5.6 % against a 1.98 % rise on Spain`s blue-chip Ibex index. Siemens shares closed up 1.54 %.

Wind Power Giant

The deal is the latest in a string of mergers in the wind industry, which having suffered years of overcapacity and losses, is now thriving as demand for carbon-free electricity increases. 

Getting bigger should also help to lower costs, one of the industry`s key targets in its race for more efficient turbines, which in turn will make it more competitive compared to conventional sources of energy such as gas and coal.

"The strategic rationale is to create an installed base of 70 gigawatts to help our customers drive down the service costs," Siemens CEO Joe Kaeser told analysts.

Gamesa and Siemens had said in January they were discussing a possible wind merger but talks stalled because of concerns linked to an existing joint venture, Adwen, between Gamesa and France`s state owned energy company Areva.

Both companies said on Friday they had granted Areva three months to decide whether it wanted to buy out Gamesa`s 50-% stake in the venture or sell it to them. A Siemens France spokesman said after the announcement that the new group was interested in buying Adwen and if it did so it would respect all contractual obligations.

Alternatively, Areva could sell the entire venture to a third party, with Gamesa obliged to accept the terms of the agreement.

The three month period could give General Electric, which wants to become a major player in the offshore wind industry and said on Thursday it was already talking to the companies involved, an opportunity to buy Adwen if the French government consents.

The new Gamesa-Siemens business will have 21,000 employees and will be headquartered in Spain. Siemens will have five out of the 13 board members with Iberdrola having two of its own. 

Iberdrola, which backed the proposed merger, will see its stake in Gamesa diluted to 8 % from almost 20 %. There will also be a free float of 33 %.