IBDRY Iberdrola SA (PK)

By Christopher Alessi and Carlos Lopez-Perea 

FRANKFURT--German industrial conglomerate Siemens AG and Spain's Gamesa Corporación Tecnológica SA have agreed to merge their wind power operations in a binding deal that would create one of the world's largest wind- turbine makers.

The companies said on Friday, Siemens would take a majority stake of 59% in the planned combined entity, while Gamesa's existing shareholders would hold a 41% stake. As part of the deal, Siemens would also provide Gamesa shareholders with a cash payment of EUR3.75 a share, to be distributed directly following the completion of the merger, according to the companies.

Gamesa's largest shareholder, Iberdrola, which holds a 20% stake, supports the deal, Gamesa said. Iberdrola would own an 8.1% stake in the future company.

The new joint venture, which would maintain its global headquarters and public listing in Spain, would have revenue of EUR9.3 billion ($10.45 billion) and adjusted earnings before interest and taxes of EUR839 million, Siemens said.

"This is the best possible combination that creates value for customers, shareholders and, of course, employees," Siemens Chief Executive Joe Kaeser said of the deal structure on a conference call with reporters Friday.

Gamesa Chief Executive Ignacio Martin said Friday, in a conference call with reporters, that the transaction makes "big strategic and financial sense.

The companies said they expect synergies on annual EBIT--earnings before interest and taxes--of EUR230 million in the fourth year after the closing of the deal.

Mr. Martin called that target "cautious and perfectly achievable."

Siemens and Gamesa had, in February, agreed in principle to combine their wind businesses but the tie-up was delayed because the Spanish company needed to renegotiate part of an offshore wind joint venture, known as Adwen, with French nuclear-engineering company Areva SA.

The Wall Street Journal on Wednesday reported that the issues surrounding Adwen had been in resolved in principle, according to people familiar with the matter, and that Siemens and Gamesa were close to announcing the long-anticipated deal.

Gamesa and Areva have agreed that Areva would waive existing contractual restrictions in Adwen to simplify the Siemens-Gamesa tie-up, the companies said. Gamesa also granted Areva a put option for the latter's 50% stake in Adwen and a call option for Gamesa's 50% stake in that joint venture. Both of those options expire in three months, according to Siemens and Gamesa.

Areva on Wednesday separately announced plans to split the state-controlled nuclear-engineering group in three, as part of a comprehensive restructuring plan that would see the company sell its renewable energy assets overtime.

General Electric Co. said the U.S. industrial company is also involved in discussions over the future of Adwen but there are "no definitive plans at this point."

The Siemens-Gamesa merger would create a new global market leader in wind energy by capacity, surpassing China's Xinjiang Goldwind Science & Technology Co., Denmark's Vestas Wind Systems A/S and General Electric Co., according to FTI Consulting.

Siemens and Gamesa said their respective wind businesses were highly complementary.

Siemens's wind division, which had almost EUR6 billion in revenue in 2015, manufactures and installs wind turbines for on- and offshore farms. But the business has been largely focused on the offshore market--where it has an ample order backlog for turbines--while missing onshore growth opportunities, analysts say.

Mr. Kaeser said that the deal would give Siemens access to offshore markets in emerging economies in Asia and Latin America, where Gamesa currently has a strong presence.

Siemens' supervisory board and Gamesa's board of directors both approved the deal, the companies said. But the deal is still subject to approval by Gamesa shareholders.

Monica Houston-Waesch and Eyk Henning also contributed to this article.

Write to Christopher Alessi at christopher.alessi@wsj.com and Carlos Lopez-Perea at carlos.perea@wsj.com

(END) Dow Jones Newswires

June 17, 2016 11:16 ET (15:16 GMT)

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