Siemens to Explore Gas Turbine Deal With Asian Partner

Mar 21 2019, 12:26 PMMar 21 2019, 3:13 PMMarch 21 2019, 12:26 PMMarch 21 2019, 3:13 PM

(Bloomberg) -- Siemens AG is exploring a combination of its large gas turbine business with an Asian partner, according to people familiar with the matter.

The German company has held talks with firms including Mitsubishi Heavy Industries Ltd., said the people, who asked not to be identified because the talks are private. Options range from a full or partial sale of the division to a joint venture, the people said. No final decisions have been made and Siemens may still decide to keep the unit, they said.

Siemens has been considering options for the large gas turbine business, which forms the biggest part of its power-and-gas division, since at least last June, when people familiar with the matter said the German engineering company was considering a potential sale. The business was worth about 3.2 billion euros ($3.6 billion), Berenberg analyst Simon Toennessen estimated at the time.

“The situation on the global market for fossil power-plant technology remains unchanged,” the company said in a statement, declining to comment on talks about the turbine business. “Siemens began tackling these challenges back in early 2015.”

A spokesman for Mitsubishi Heavy declined to comment.

Siemens shares advanced as much as 2.6 percent following the Bloomberg report, the most in more than a month. The stock was up 0.9 percent to 98.20 euros at 1:13 p.m. in Frankfurt.

Global Slowdown

The global market for gas turbines has collapsed as renewable energy has become cheaper. Siemens announced in 2017 it would cut 6,900 jobs in its power and gas division to respond to that shift.

Antitrust issues could play into any dealmaking.

General Electric Co. was the top producer of gas turbines last year, with about 33 percent of global orders by capacity, according to Barclays Plc. Mitsubishi Hitachi Power Systems followed with 30 percent, while Siemens was third with 26 percent. The German company was set to generate about 5.2 billion euros in revenue from turbine sales and service in 2018, Berenberg estimated last year.

What Bloomberg Intelligence Says

“Siemens’ potential combination of its gas-turbine unit with Mitsubishi Heavy Industries, as reported by Bloomberg, is likely to face antitrust scrutiny. A merger would essentially create a gas-turbine market duopoly with GE, but any deal could be defended on the basis of a limited regional overlap.”

-- Johnson Imode, industrials analyst

Click here to view the research

Siemens’s power-and-gas division will be renamed gas and power on April 1, reflecting the company’s new structure. Siemens announced last year that it was shrinking the number of operating divisions from three to five and that it would focus on factory software and energy distribution, attempting to get the jump on newer technologies that had been disrupting its core business.