Two wind giants go head to head -- Vestas and Gamesa split

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Spain's wind giant Gamesa is preparing to storm international markets with new owners, a new plan and new technology. Bullish behaviour last month by the publicly traded wind and aeronautical company sent a rapid series of shock waves through Spanish and Danish stock markets and the wind industry.

The first and most powerful of these came with the news that Gamesa and Denmark's Vestas are ending their seven-year-old partnership. The split sees Vestas relinquish its 40% in Gamesa Eólica to the Gamesa group for EUR 287 million and phase out the technology transfer agreement between the two companies. Just two days later, Gamesa announced a new strategic plan for 2002-2004 aimed at increasing the group's net profits by 24%, which includes selling off wind plant operated by its project development arm, Gamesa Energía. At the same time it confirmed a deal with German turbine manufacturer Repower Systems to manufacture and market its 1.5 MW machine. Just a week later it followed through with news that it is buying the 9% share in Gamesa Eólica still held by the Navarra regional government.

When that EUR 64.56 million agreement is done, Gamesa will be the sole owner of its wind turbine division. If there was any doubt left by now regarding Gamesa's intentions, a corporate statement spelled it out: "The agreements signed with Vestas y Sodena ... confirm Gamesa's strategy of becoming the world's leading wind power company."

Why Vestas agreed to a sale that converts a formidable partner into a major market rival has been a main point of speculation in wind circles. The alliance represented nearly 32% of the global wind turbine market in 2000, with 18% supplied by Vestas and 13.9% by Gamesa Eólica, according to the annual wind market survey compiled by Denmark's BTM Consult. Vestas, however, says it "will continue to strive for a 25-30% world market share."

Most indicators suggest the Vestas-Gamesa bust up to be down to the fact that the two companies had already become competitors. Vestas' managing director, Johannes Poulsen, is quite unequivocal: "Differences in strategy between Vestas and Gamesa have led to an increasing number of strategic conflicts in the marketplace. We have therefore been looking for ways and means to avoid this and our sale of Gamesa Eólica shares seems to be the better option for all parties involved."


The "conflicts" arise partly from Vestas policy of being a turbine supplier only, while Gamesa also operates as a project developer through Gamesa Energía. At the same time Gamesa Eólica's growth created a need to expand beyond the geographical confines of its former agreement with Vestas. That agreement limited Gamesa Eólica's market mainly to the Iberian Peninsula and some Latin American countries, while Vestas remained free to supply the rest of the world. But earlier this year Gamesa Energía defiantly announced that it had gained grid connection rights for over 500 MW in Greece and Italy, areas outside the agreement terms (Windpower Monthly, September 2001). Furthermore, it now confirms further connections in Portugal as well as plans to develop in France, Dominican Republic, Mexico and Brazil, as well as in Spain. In all Gamesa plans to install 877 MW in new capacity by 2004.

Global freedom

Following the separation deal, Gamesa Eólica says it has the right to sell anywhere in the world. At the same time the company retains its technology transfer agreement with Vestas for the two 850 kW models until the end of 2002 and for the G66-1.65 MW and V80-2 MW machines until the end of 2003.

At this level, Gamesa seems to be the main beneficiary of the bust up. But with many questions unanswered regarding the split and its repercussions, the stock markets remain wary of both. The Danish market immediately punished Vestas with an 8% drop in value, while Gamesa shares fell by 4.39%.

According to stock market analysts, Vestas sold at a large discount. Poulsen disagrees: "It's not up to me to instruct the analysts, but as I've said several times I believe we got a fair and reasonable price compared with what we would have earned if we had retained our stake in Gamesa." Poulsen adds that Vestas has no interest in a price war, again quashing analyst speculation. "Vestas will not pursue the same customers as Gamesa," he says. On whether the two companies have come to an agreement about the Spanish market, he comments: "That's not an easy one to answer as any such agreement would be against EU competition rules."

Phased handover

The phasing out of Vestas' technological support coincides with the payment schedule for Gamesa's 40% share purchase. An immediate 50% down payment will be followed by a further two payments of 25% each over the next two years. But just how quickly and to what extent Vestas technology will be phased out and new technology phased in remains to be seen.

Gamesa says it is free to sell all five models, from the 600 kW up to the 2 MW unit "in any country for an unlimited period." It also has high hopes for the Repower technology which it describes as "highly competitive." Repower was formed in April 2001 from the merger of three German companies: two small wind turbine manufacturers, Jacobs Energie and Brandenburgische Wind und Umwelttechnologien, and engineering firm Pro and Pro Engergiesysteme. In his presentation of Gamesa's 2002-2004 business plan, Gamesa CEO Iñaki Gandásegui said that Gamesa Eólica aimed at increasing its world market share by 1% annually -- though he did not say which technology would be the mainstay of new growth.

Poulsen, who only knew about the part to be played by Repower after the split was agreed, says the news gave rise to a "certain wonderment" at Vestas.

Pulling out

Gamesa's decision to sell off wind plant operated by its wind development arm, Gamesa Energía, is significant given that it is now Spain's second largest developer in terms of installed capacity with a total of 503 MW on-line from 17 wind plant, all in Spain. Financial analysts agree that the close ties between Gamesa and Spain's second largest utility, Iberdrola, are behind this move. Iberdrola owns half of IBV, which despite reducing its participation in Gamesa to 37.8% earlier this year still remains the majority share holder.

Significantly, in November Iberdrola announced a EUR 3.6 billion commitment to developing and operating wind power and other renewables. As a result, Iberdrola is widely expected to be the main buyer of Gamesa turbines in Spain. Gamesa, meantime, can concentrate on turbine manufacturing to raise the capital to pay off its deal with Vestas.

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