Siemens Energy's Resurgence After Crisis: Strategy to Reject Wind Division Spin-Off Demands

In recent years, the global energy market has entered an unprecedented period of transformation. In particular, the shift towards decarbonization and renewable energy has become a driving force prompting strategic restructuring and investment for many companies. Amidst this, Siemens Energy, spun off from German heavy electrical giant Siemens, has achieved a remarkable recovery after facing a severe management crisis, drawing significant market attention.

However, behind this revival, the company faces intense pressure from activist investors demanding the spin-off of its underperforming wind power division, Siemens Gamesa. Siemens Energy firmly rejects this demand, asserting that "full integration" with its gas and power businesses is the only viable strategy to survive the energy transition era.This article delves deeply into Siemens Energy's comeback story, its battle with activists, and the future of the energy market revealed by its strategy.

Activist Pressure and Siemens Energy's Counterargument: Integration or Spin-off?

Siemens Energy's stock price has surged nearly twofold since the start of 2023, demonstrating a recovery far exceeding market expectations. Despite this strong performance, activist investor Enkraft is demanding the company spin off its wind power subsidiary, Siemens Gamesa, which has been posting massive losses.Enkraft argues that Gamesa is a drag on the parent company and that separation would maximize the value of both businesses.

In response to this demand, Siemens Energy CEO Christian Bruch has firmly countered. He emphasized that the integration of Gamesa is "final," stressing that close collaboration between the gas and power and wind power divisions is essential to address the increasing complexity of the entire energy system. Specifically, the following points are cited as benefits of integration:

• Development of hybrid solutions: Building efficient energy supply systems combining gas-fired power generation and wind power.
• Grid integration technology: Joint development of smart grid technology to manage the variability of renewable energy.
• Leveraging a global customer base: Sharing the extensive customer networks and supply chains of both divisions.
• Streamlining R&D investment: Avoiding duplication of investment in technological innovation and maximizing synergies.

CEO Bruch stated, "Gamesa is in a difficult situation, but we are in the process of rebuilding our future portfolio," warning that a short-term separation would undermine the long-term growth strategy. This integration strategy reflects Siemens Energy's ambitious vision, aiming not merely at cost reduction but at creating new value during the energy transition.The market is closely watching whether this integration strategy can truly overcome Gamesa's difficulties and lead to long-term growth.

Siemens Gamesa's Struggle: The Harsh Reality of the Wind Power Market

Behind Siemens Energy's rejection of activist demands lie the serious challenges facing Siemens Gamesa.While Gamesa is one of the world's leading companies in the offshore wind power market, it has been plagued by repeated technical problems and quality control deficiencies over the past few years. In particular, design flaws in onshore wind turbines, soaring manufacturing costs, and supply chain disruptions have cast a significant shadow over the company's performance.

Specifically, the following problems can be cited:

• Quality Issues and Warranty Costs: Frequent component failures in onshore wind turbines have led to substantial warranty expenses and repair costs. This has resulted in reported losses amounting to tens of billions of euros.
• Supply Chain Disruptions: Pandemic-related and geopolitical risks have destabilized component procurement, causing delays in production schedules. Supply bottlenecks are particularly severe for key components like blades and gearboxes.
• Inflationary Pressure: Surging raw material prices and logistics costs are squeezing profits. This is a challenge faced not only by Gamesa but across the entire wind power industry.
• Intensifying Competition: The rise of Chinese companies has intensified price competition. Gamesa faces constant pressure to innovate technologically and reduce costs.

These issues have also placed a significant burden on Siemens Energy's overall financial situation. Despite the parent company injecting substantial funds to restructure Gamesa, the path forward remains challenging. However, CEO Bruehl emphasizes that these problems are "temporary" and that, from a long-term perspective, wind power remains central to the energy transition.The underlying recognition is that Gamesa's technological capabilities and market presence remain strong, and that strengthening collaboration with the parent company is essential to resolving the issues. Siemens Energy is seeking to establish a sustainable growth model by revitalizing Gamesa.

Siemens Energy's Integration Strategy: Ambition to Lead the Energy Transition

Behind Siemens Energy's rejection of Gamesa's separation request and its commitment to "full integration" lies a vision far greater than mere business restructuring. It is the ambitious goal of building and providing the entire future energy system by integrating gas-fired power generation, wind power generation, and related transmission and distribution technologies.

CEO Christian Bruch points out that the challenges facing today's energy market cannot be solved by a single technology or business unit. The expansion of renewable energy is closely linked to grid stability, supply predictability, and the evolution of energy storage technologies. Siemens Energy believes the key to solving this complex equation lies in cross-divisional synergies.

The main strategic pillars are as follows:

• End-to-End Solutions: Providing customers with comprehensive energy solutions spanning generation, transmission, and consumption. Combining Gamesa wind turbines with Siemens Energy gas turbines and grid technologies ensures stable power supply.
• Digitalization and AI: Actively introducing digital technology and artificial intelligence to improve power plant operational efficiency, predictive maintenance, and energy management system optimization.
• Contribution to the green hydrogen ecosystem: Promoting green hydrogen production using electricity generated by wind power. This is an essential element for the decarbonization of industry and could be a long-term growth driver for Siemens Energy.
• Collaboration with parent company Siemens AG: Technical collaboration and utilization of the global network of Siemens AG, which remains a major shareholder of Siemens Energy, will also support the integration strategy.

This strategy demonstrates a commitment to the energy transition from a long-term perspective rather than the pursuit of short-term profits. Although Gamesa is certainly facing significant challenges, Siemens Energy is seeking to overcome them and establish itself as a leader in the energy transition through its integrated portfolio. This can be described as a bold challenge with the potential to have a major impact on the global energy industry as a whole.

Market Reaction and the Future of the Energy Industry: Implications for M&A Strategy

Siemens Energy's decision to reject activist demands for separation and maintain its integration strategy has sent various ripples through the market.While some analysts express concern that Gamesa's ongoing losses will inevitably burden the parent company, others maintain that from a long-term perspective, the synergies from integration will ultimately enhance corporate value. Particularly as the energy transition accelerates, the value of companies capable of providing integrated solutions encompassing power generation technology, transmission grids, and energy storage is likely to increase further.

This Siemens Energy case offers several key insights for companies considering M&A strategies:

• The Importance of Long-Term Vision: Strategic integration focused on future market needs, rather than being swayed by short-term performance setbacks, is essential for overcoming difficult periods.
• Flexibility in Portfolio Restructuring: During the energy transition, constant restructuring of existing businesses and investment in new technologies are required. This sometimes necessitates painful decisions.
• Maximizing Synergy Effects: The key to M&A success lies not merely in expanding scale, but in how effectively companies create technological and market synergies between different business units.
• Activist Investor Engagement: Companies must be prepared to respond to activist investor demands with clear strategic rationale. Governance and communication are critical.

The wind power industry faces headwinds such as inflation, supply chain issues, and intensifying competition, yet the global trend toward decarbonization is irreversible.Siemens Energy's integration strategy is an attempt to overcome these challenges and build a sustainable growth model. If successful, it could become a new benchmark in the energy industry. The coming years will be a critical test of whether Siemens Energy can realize its vision. This case should provide valuable lessons for energy companies considering M&A or business restructuring.