Siemens eyes crossovers with €4bn deal

On Saturday, the worst kept secret in wind was finally confirmed: Siemens Energy wants to pay €4bn for the 33% it does not own of Siemens Gamesa.

This is a significant deal for the wind sector.

Siemens Gamesa was founded in 2017, when the wind turbine arm of German conglomerate Siemens merged with Spanish developer Gamesa. The idea was to launch a company that could do it all – onshore wind, offshore wind and servicing – as wind became a bigger part of the energy mix; and bolster Siemens with Gamesa’s emerging markets and development expertise.

The fact Siemens Energy now plans to de-list Siemens Gamesa and reintegrate it back into its main business is a recognition of how wind has changed in the last five years. The challenges are bigger than this wind specialist can handle, and Siemens sees the solution is to again be a broad-based technology firm.

Goodbye Gamesa

Siemens Energy is looking to buy the 33% of Siemens Gamesa for €18.05 per share, which is a 27.7% premium on the closing share price on 17th May 2022.

Its plan is to fully integrate Siemens Gamesa into Siemens Energy – which we must assume means the end of the ‘Gamesa’ name – so it can find annual cost savings of €300m a year within three years of full integration.

In addition, Siemens Energy plans to find revenue synergies of “mid-triple-digit million” euros by the end of the 2020s.

The company said it is important to act now to deliver a turnaround plan for Siemens Gamesa’s operations, where the company has made a series of profit warnings over the last year. Challenges for the business have included inflation in raw material and transport costs; supply chain disruption; and issues with the rollout of the 5.X onshore turbine platform that it launched in 2019, when it touted the 5.X’s highly flexible design.

It is not the only turbine maker facing challenges with higher costs, slimmer margins and supply chains that have been disrupted since the start of the Covid-19 pandemic two years ago. But Siemens has clearly decided that it would be best to tackle these challenges using its broad energy expertise, rather than as a specialist wind company.

This is why the firm is stressing the breadth and depth of its portfolio, including in renewables, conventional power, industrial applications and transmission. It is not an option for wind to operate in isolation in a market where renewable energy businesses are increasingly being drawn into power-to-X, energy storage and electric vehicles.

The result is wind at Siemens Energy will line up alongside other technologies, in a similar way as at GE Renewable Energy, with the hope that it will enable the group to find technical synergies.

This contrasts with the strategy of turbine giant Vestas, which has so far stayed true to its history as a wind turbine specialist and, no doubt, would argue that this expertise helps it work with other technologies.

But Siemens Energy is looking to go down the GE route to spark its wind turnaround, and as good as confirmed it at its Capital Markets Day yesterday. It said it wanted wind to be part of an integrated energy technology company; and is planning to overhaul its own organisational structure by cutting 30% of management positions.

It will hope this broad-based strategy will spark a turnaround. Charging higher prices for its onshore wind turbines (see news) should help too.

US hibernation

Overhauling Siemens Gamesa’s ownership is only part of its turnaround plan.

On Tuesday, the firm revealed it is putting its US manufacturing operations into “hibernation” by July as a result of slowing onshore wind demand in the country. The company said it will pause operations at a blade plant in Iowa and a nacelle plant in Kansas in June and July respectively, with the loss of 263 staff.

Slow progress on Biden's renewables plans is not the only reason for the US problems. Siemens Gamesa has also been hit by a patent dispute with GE that meant it couldn’t sell some models in the US, even though the International Trade Commission ruled in Siemens Gamesa’s favour in January.

The company has confirmed that it remains committed to US offshore wind and that the facilities it is hibernating are “entirely unrelated” to its offshore operations. We look forward to seeing how its global plans take shape.