GE eyes Adwen for offshore push


May 6, 2016

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General Electric could pave the way for a €10bn Siemens merger.

This is the intriguing prospect that arose this week as it emerged that the US giant has been mulling a bid for Adwen, which is the offshore wind joint venture of French firm Areva and Spanish manufacturer and developer Gamesa. The future of Adwen has been a block to the much-talked-about merger between Gamesa and the wind arm of Siemens; and so, if GE bought Adwen, then it would also help Siemens to merge its wind arm with Gamesa.

Confused? We wouldn’t blame you. This is the closest we are likely to get to a soap opera between the top turbine makers.

Let’s look at each deal in turn.

First, GE and Adwen. There is a lot for offshore wind investors to like in this plan. GE has been involved in the offshore wind sector since late last year, when it bought French firm Alstom’s energy assets for €12.4bn. This gave GE turbine supply contracts for schemes totalling 1.5GW in the waters off France, where installation is due by the end of 2019. GE is also aiming to break into the top three of offshore wind turbine suppliers in Europe.

This is good talk, but the fact is that GE is nowhere near its target. Siemens is the market leader in European offshore with 63.5% of total installed capacity at the end of 2015, ahead of MHI Vestas (18.5%), Senvion (7.4%), Adwen (5.7%) and BARD (3.6%). GE has a puny 0.4%, but buying Adwen would grow this to 6.1%.

This would bring more competition into the offshore wind sector, which means more investment in technology that could help to drive down the levelized cost of energy. GE is a big name and, backed up with Adwen and Alstom technology and development pipelines, could be a real challenger. If it helps to make offshore more competitive then that looks like good news for investors.

GE would also likely be attracted by the prospect of a motivated seller, though the firm has stressed that it has not yet made a bid and there have been no negotiations.

And a deal for Adwen would throw up some challenges too. GE faced protracted negotiations with the French government over the Alstom buyout, with French leaders keen to protect France’s national interests. Since then, GE has announced 6,500 job cuts at former Alstom units, and the chance of Areva technology ending up in GE hands could be too sensitive for the French government.

Any deal here could also pave the way for the second transaction in this soap opera: Siemens merging with Gamesa.

This has progressed slowly because of the dispute over Adwen, with Siemens unwilling to take on the Areva technology within Adwen because it already leads offshore. If GE were to buy Adwen then it would aid the chance of two of its biggest rivals merging.

In our view, that should not stop GE. The company’s strategy is to grow in offshore wind, and there are no other viable buyout target if GE wants to do so quickly. The chance to merge the French-based operations of Adwen with former Alstom assets makes sense.

The likelihood is that the Siemens-Gamesa deal would happen at some point as long as the firms are willing to find a solution to their Adwen-shaped roadblock. GE can do little about that.

If GE is serious about offshore then it may as well take advantage of this situation — even if it means helping its rivals in the process.

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