Rolls-Royce will improve its profit potential with Siemens scale and reach in the energy sector

Siemens’ agreement to acquire 100 per cent ownership of Rolls-Royce’s gas turbine and compressor business for $1.32 billion is a deal that will benefit both sides, according to an analyst with research and consulting firm GlobalData.

Mamta Saharan, GlobalData’s Senior Analyst covering Power, states that a joint portfolio will allow Siemens to pursue significant growth opportunities in the decentralized power generation and oil and gas sectors, while Rolls-Royce will be able to focus on the more profitable branches of its business.

Upon completion of the deal, which is expected to be finalized by December 2014, Siemens will gain access to relevant Rolls-Royce aero-derivative technology for use in its 4–85 Megawatt (MW) power output gas turbine range.

Saharan says: “This deal will provide an opportunity for Siemens to tap desirable new markets. Aero-derivative gas turbines are an appropriate option in the oil and gas industry, especially for offshore oil platforms with limited space, as they are compact in size and highly efficient.

“These turbines are also a popular choice for decentralized power generation, due to their efficiency and fast start-up capabilities. Their flexibility helps to provide emergency electricity reserves, meet peak power demand and stabilize the power grid.”

GlobalData asserts that an enhanced product portfolio will enable Siemens to catch up with competitors, such as General Electric and ABB, while an increased customer base will propel the company towards meeting its profit targets.

For Rolls-Royce, the sale of its energy division will provide the opportunity to focus on stronger areas of business that are most likely to add value.

Saharan concludes: “Rolls-Royce’s energy division has proved a margin-dilutive distraction, and the smallest unit in terms of revenue. As it cannot compete with giants in the market, the acquisition will improve its profit potential by utilizing Siemens’ scale and reach in this sector.”