Siemens to buy Rolls-Royce energy assets for £785 million

Rolls-Royce is selling some of its energy assets to Siemens for £785 million, it has been confirmed.

Siemens is solidifying its position in the energy market by purchasing assets from Rolls-Royce in a deal worth £785 million. The German company has confirmed that it will acquire the gas turbine and compressor business from Rolls Royce Energy in a transaction due to be completed by the end of the year.

But the deal will also have implications over the long term.

After the sale closes, Siemens will also pay Rolls-Royce another £200 million over 25 years to access any of its aero-turbine technology development in the four to 85 megawatt power output range. It will also get what it describes as “preferred access” to engineering and supply services.

It came as Siemens announced that it is planning to undergo a major restructuring programme that will see the whole company rearranged. The existing 16 subdivisions will be consolidated into nine separate units as part of a plan to focus more closely on areas where the Munich-based firm can compete and grow – specifically “electrification, automation, and digitalisation”.

In some respects, it is already leading in these arenas. The company says it is expecting turbines to remain a key growth market, with demand for both offshore wind turbines and small gas turbines set to rise.

Given that Rolls Royce is a leading provider of auto-derivative gas turbines, especially models with an output up to 66 megawatts, the acquisition is a logical step for Siemens to consolidate its product offerings in an area that is set to keep growing.

But at the same time, Siemens will see the move as an important victory at a time when it is stuck in a battle with General Electric to acquire French company Alstom, a deal that would further bolster the German firm’s position as a top manufacturer of high-speed trains.

There are other sense in which the company is playing catch-up with its US rival, too. There’s a gap in profitability between Siemens and General Electric, and even their competitor ABB. Investing in a leaner structure, maximising productivity and improving its product portfolios are all crucial parts of a plan to catch up and overtake its rivals.