Siemens Energy's potential takeover bid for Siemens Gamesa ends a year of rumors

After months of speculation and denial, Siemens Energy AG finally confirmed May 18 that it is exploring a takeover of Siemens Gamesa Renewable Energy SA, the beleaguered wind-turbine maker in which it owns a majority stake.

As recently as May 11, Siemens Energy CEO Christian Bruch remained tight-lipped about a potential deal. Siemens Gamesa has endured a rocky few quarters, and its issues have fed through to its parent, with a takeover seen as a way to simplify the ownership structure and give Siemens Energy greater day-to-day influence.

The turbine-maker's problems stem from external factors that have hit the wider wind industry and internal issues that new CEO Jochen Eickholt has pledged to address. The company continues to battle commodity price inflation and supply chain disruption as well as technical issues in its onshore wind division.

These challenges contributed to a recent profit warning, with Siemens Gamesa reporting a €304 million operating loss for the fiscal second quarter — its fourth straight quarterly loss. Siemens Energy reported an adjusted EBIT of negative €77 million in the same quarter due to the turbine-maker's poor performance.

A takeover is an "obvious move" given that rumors about a deal have circulated for at least a year, according to Shashi Barla, director and head of research at Brinckmann, a consultancy.

"Siemens Energy was already hinting at the market indirectly for some time, so the various stakeholders, including the shareholders, [could] digest the transition," Barla said in an email.

Paying a premium

Siemens Gamesa's stock price stood at €15.91 at market close May 18, the day Siemens Energy said it is considering a takeover, having increased 12.6% from the prior day's closing price of €14.13. In the year leading up to the announcement, the company's stock lost about 46% of its value.

Siemens Gamesa's issues have also weighed on the value of its parent, with Siemens Energy's stock down about 34% in that time. For comparison, the S&P 500 Capital Goods index lost 8.7% in value over the past year.

Gael de-Bray, an analyst at Deutsche Bank, said Siemens Energy will have to pay a premium big enough to convince Siemens Gamesa's minority shareholders to tender their shares. BlackRock Inc. and Norges Bank Investment Management are the next-largest shareholders after Siemens Energy, according to S&P Global Market Intelligence data.

"If the price tag looks too low, the risk would be to see some activists getting involved in the process," de-Bray said in a May 19 note to clients.

"We assume a take-out price of €19/share. This would correspond to a 33% premium compared to the share price prior to the company's ad-hoc release on May 18. Based on the average share price during the last three months, this would be a 15% premium," the analyst said.

No more rumors

Siemens Energy's brief statement confirmed that it is "considering a cash tender offer for all outstanding shares in Siemens Gamesa," with the intention of delisting the turbine-maker from the Madrid Stock Exchange, where it has traded since the 2017 merger between Siemens Wind Power and Gamesa.

"The outcome of this consideration is open," Siemens Energy said in the statement. "No decision has been made, and there is no certainty that a transaction will materialize."

The announcement came a year to the day after Siemens Energy denied reports that it was working on a takeover bid, adding that it could "not exclude any scenario in the future."

Rumors of a potential deal again emerged in January, when Reuters reported that Siemens Energy hired advisers to explore options for the remaining 33% stake in Siemens Gamesa. Since then, the turbine-maker hired Eickholt as CEO and Tim Dawidowsky as COO — both joining from Siemens Energy.

Barla described the merger as a "lethal combination" and a chance to accelerate the energy transition in the long term.

"Siemens Energy's products and services address all the critical energy and power-related sectors, including renewables," Barla said. "Wind will closely follow other heavy industries such as aviation, and gas turbines, where the top three players garner the lion's share of the global market (80+%)."

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