Gamesa-Siemens, The Merger That Makes Sense

gamesa

UBS | Gamesa has confirmed it is in talks with Siemens regarding a combination with some of Siemens’ wind assets “through a merger structure”. A merger is the preferable option against the possibility of Siemens acquiring Gamesa. The primary reason is that the value of the potential synergies are shared between the two parties rather than, as is often the case in a take-over, transferred to the seller. Doubling up in renewables by acquiring Gamesa to us seems risky financially as well as operationally.

R&D and other synergies could be worth EUR >1bn

A merger between Siemens wind power and Gamesa could provide scope for synergies in areas such as R&D, production and SG&A. Assuming a saving equal to EUR60-80m in R&D and another 1.5-2.5% of Gamesa’s 2014 revenues in other cost savings the NPV is likely to be EUR >1bn depending on assumptions regarding costs and timing of realisation. If the new company focuses on profits, rather than growth, then there could be scope for greater savings in our view.

Could create a new market leader with 15% share

Siemens’ wind assets and Gamesa would according to data from BTM Navigant create a market leader with 15% market share. We believe that Siemens’ onshore wind revenues were circa EUR 2.9bn in 2014, which is similar to Gamesa’s total revenues. In addition we believe Siemens generated EUR 1.9bn from offshore. This suggests to us scope for cost savings in the overlapping onshore business but also cross selling opportunities in offshore. Geographically the two companies seem complementary with Siemens largely focused on Europe, North America and China (5% of revenues in ’14) while Gamesa has increased focus on emerging markets in recent years.

Valuation: PT EUR 110

We value Siemens on 10x normalised 2017 EBITA (fair value multiple 9-10x but at the high end given elevated multiples elsewhere in the sector), to which we add EUR 13 per share to reflect the value we see in the turnaround of underperforming businesses and the potential portfolio optimisation.