Siemens Gamesa Renewable Energy SA's nearly six-year journey on the stock market came to an end Feb. 7, as the beleaguered wind turbine-maker was integrated into Siemens Energy AG in a bid to turn its fortunes around.

For Siemens Energy, taking full control of its wind unit — formed out of the merger between Germany's Siemens Wind Power and Spain's Gamesa Corporación Tecnológica SA — is an admission of longstanding negligence and a failure to capture value, analysts said.

Siemens Gamesa shares ceased trading on the Spanish Stock Exchange a little over eight months after Siemens Energy — already majority owner — launched a €4.0 billion cash tender offer for its subsidiary, which is struggling with profitability in the face of technical issues and external market pressures.

The company installed a new CEO in March 2022: Jochen Eickholt, a "turnaround specialist" who quickly initiated a program known as Mistral to help return the business to profit.

But a recent €472 million hit on its first-quarter earnings, coming due to unexpected component failures, was the latest in a long line of internal setbacks for the world's third-largest turbine-maker, adding to ongoing problems with the ramp-up of its 5.X onshore platform.

Siemens Gamesa's subsequent integration into Siemens Energy is part of an effort by the parent company to become more involved in the turbine-maker's day-to-day operations and realize up to €300 million in cost synergies within three years.

The turnaround is "key to our vision," Siemens Energy CEO, President and Chairman Christian Bruch told analysts Feb. 7 as the company reported its quarterly earnings, adding that the project will be a major personal focus in the coming year.

'Dramatic simplification'

Siemens Energy has increased its 67.1% stake to 97.6% as of Feb. 6 and is aiming to reach 100% after its subsidiary exits the stock market. With trading now suspended on Siemens Gamesa, delisting is expected to occur around Feb. 10.

As part of the delisting, Siemens Gamesa's board will reduce from 10 members to just three, and the turbine-maker will have "very limited external reporting requirements," Bruch told analysts. Corporate functions such as IT, cybersecurity and HR will also be harmonized.

"We are talking about a dramatic simplification of the governance structure," Bruch said. "This means that Jochen [Eickholt] and his team can really focus 100% on solving the operational problems and to achieve the all-important turnaround, and we will all obviously ... support Jochen and his team in achieving this."

Analysts said the integration makes strategic sense in the long term but that support from Siemens Energy has come too late, adding that the parent company should have been more involved when issues came to light, rather than treating Siemens Gamesa as an independent entity.

"They probably could have done [the takeover] from a position of strength rather than a position of weakness," said Lucas Ferhani, an analyst at investment bank Jefferies. "Despite owning two-thirds of the capital, they didn't exert two-thirds of the capital influence on Siemens Gamesa."

Ferhani added that it has long seemed like Siemens Energy has been "discovering [Siemens Gamesa's] issues at the same time as the market."

Parallels with 2017 merger

Siemens Gamesa's short stint in the public markets ultimately means the 2017 deal that created the company "did not deliver on its promises," according to Ferhani.

The merger was heralded at the time as creating "a world-leading wind player" that combined the offshore expertise of Siemens AG's wind unit with Gamesa's sprawling onshore portfolio in Southern Europe, Latin America and India.

Yet, the €18.05 per share that Siemens Energy is paying as part of its takeover is around the same price level that Siemens Gamesa traded at in the weeks immediately after its IPO.

The turbine-maker's financial results similarly show evidence of, at best, a plateauing, and at worst, a decline.

Revenues in the company's 2017 fiscal year amounted to €10.96 billion and have never reached those heights since, with 2022 revenues coming in at €9.81 billion, according to data from S&P Global Market Intelligence. The company's profitability has also worsened in that time: Its EBIT margin in fiscal year 2017 was 7.1%, compared with negative 5.9% in fiscal year 2022.

Over the same period, revenues at Denmark's Vestas Wind Systems A/S, the world's largest turbine-maker, have grown almost 50% from a lower starting position, reaching €14.49 billion in 2022, though even it has similarly experienced negative profitability lately.

"Despite the massive growth that we've seen in the industry ... revenues have not moved," Ferhani said about Siemens Gamesa. "Essentially they didn't grow the business and they killed profitability."

In some ways, the narrative around Siemens Energy's takeover is "very reminiscent" of the Siemens Wind Power-Gamesa merger in terms of the optimistic comments made by the parties, according to Ferhani.

"People were saying this could be the start of something big," the analyst said about the 2017 deal. "It will be interesting ... whether they actually deliver something that is more successful."

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