Siemens and Gamesa have finally hammered out a deal. After months of talks, the German engineering company said on June 17 it would hand over its wind assets and Euro 1 billion to the Spanish renewable-energy group in return for a 59 per cent stake in the combined entity. Given that scale matters when building wind turbines, it's a good time to hook up.
As renewable energy becomes a bigger part of the global energy mix, competition is intensifying. Wind competes with other green technologies like solar, where prices are falling, as well as gas. Cost cuts from consolidation will help. The pair reckon they can muster Euro 230 million of synergies a year, with about 70 per cent in cost savings from combining research and development as well as supply and logistics.
Siemens and Gamesa also have complementary businesses. The Germans are the market leaders in offshore wind in developed markets in North America and Europe, and have Euro 14.8 billion in project backlog to provide visibility. Gamesa is strong in onshore projects in high-growth emerging markets like India and Latin America.
Siemens, whose wind arm has struggled, has had to incentivize the Spaniards. Its wind assets contribute 59 per cent of the combined earnings before interest and tax, in line with its stake, but it is also paying Gamesa shareholders a special 1 billion euro dividend, 26 per cent of Gamesa's market value before news of talks emerged in late January. The payout means Siemens will be handing over roughly its share of the present value of the synergies, which are worth about Euro 1.6 billion altogether.
Another issue is that the combined business may not be easy to run. Headquarters will be in Spain, but the offshore division will be in Germany and Denmark. Siemens gets five board seats out of 13, though it appoints the chairman. But if the new group can manage the cross-border culture clashes, the tie-up should put wind in their sales.
