Siemens To Buy Rolls Royce's Gas Turbine And Compressor Business for $1.3B

Rolls-Royce Holdings plc (LON:RR) has agreed to sell its energy assets to Siemens AG (FRA:SIE) for $1.3 billion to compete with rivals General Electric Company (NYSE:GE) and ABB Ltd. (NYSE:ABB)

Munich-based Siemens will buy Rolls-Royce’s energy aero-derivative gas turbine and compressor business to strengthen its position in the power generation and oil and gas industries, the company said in a statement Tuesday, adding that the move may increase productivity by about 1 billion euros ($1.4 billion) annually, from the end of fiscal 2016. U.K.-based Rolls-Royce Energy’s gas turbine and energy compressor business has nearly 2,400 employees with an installed base of 2,500 gas turbines.

“By acquiring Rolls-Royce's small and medium aero-derivative gas turbines with a power output of up to 66 megawatts (ISO/wet-rating), Siemens will close a technology gap in its extensive gas turbine portfolio,” the German company said in a statement.

As part of the deal, Siemens will also pay the London-based Rolls-Royce an additional 200 million pounds ($340 million) over 25 years, to get exclusive access to aero-turbine technology in the 4- to 85-megawatt power output range.

“Our Vision 2020 addresses our company’s long-term perspectives along the modern electrification and automation value chains,” Siemens CEO Joe Kaeser said in a statement Wednesday, while announcing quarterly results that missed estimates.

According to Bloomberg, Kaeser is also trying to buy parts of Alstom SA (ALO)’s (EPA:ALO) energy businesses and was preparing an offer to counter a $17 billion bid by GE. The proposal might need swapping some of Siemens' rail assets for Alstom’s energy division in order to create two European leaders in the fields.

“This agreement will give the Energy business greater opportunities as part of a much larger energy company and allows Rolls-Royce to concentrate on the areas of business where we can add most value,” CEO John Rishton said in a statement Tuesday.

Siemens’ income from continuing operations before taxes rose 21 percent to 1.61 billion euros ($2.24 billion) in the second quarter while sales dropped 1.9 percent to 17.5 billion euros ($24.36 billion) and orders declined 13 percent.