Spanish close ranks in mega agreement -- Iberdrola and Gamesa join forces in deals for over EUR 6 billion

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Spain's dynamic wind duo, turbine manufacturer Gamesa and the world's top wind operator, Iberdrola Renovables, have signed a turbine deal for 4500 MW, the world's biggest to date they claim. They have also agreed to pool their European wind plant development operations as soon as clearance is given by antitrust authorities. At the celebratory ceremony for the two agreements, Gamesa also signed a contract to sell to Iberdrola, before August this year, 900 MW of wind projects it is developing across the UK, Mexico and the Dominican Republic, for around EUR 65 million.

Iberdrola has bought the 4500 MW of turbines for projects in Spain, the rest of Europe, the US and Mexico, though the company declines to specify a geographical breakdown, or the price tag. The deal, says Iberdrola, represents an investment in completed wind power plant, including transport, infrastructure and interconnections, of around EUR 6.3 billion. Iberdrola, which owns just under 24% of Gamesa, says the huge scale of the purchase helped it achieve "optimum pricing and conditions."

In a business where global supply of components is tight, Iberdrola says it now has turbines on order to meet 70% of its needs to 2012. The most recent deal is a follow-up to an earlier major order with Gamesa for delivery of 2700 MW between 2006 and 2009. More recently, Iberdrola also turned to other suppliers for a further 1610 MW, buying 700 MW from India's Suzlon, 350 MW from Spain's Ecotècnia, owned by French engineering giant Alstom, 300 MW from Japan's Mitsubishi and 300 MW from US supplier GE Energy.

For Gamesa, the 4500 MW order means boosting its annual wind turbine production capacity worldwide from 3800 MW by end-2008 to 6000 MW by end-2012. After Vestas and GE Energy, Gamesa ranks as the world's third largest wind turbine supplier alongside privately held Enercon. Gamesa's share price rose 3.19% on the day the deal was announced, reaching EUR 33.34, before continuing to rise to an all time high of EUR 36.2 after brokers at various banks, Fortis and ING among them, switched investor advice from "hold" to "sell," fixing a target price of EUR 38 and EUR 39, respectively.

Investor enthusiasm for Gamesa was also boosted by the announcement of closer project development links with Iberdrola, offering greater long term visibility on turbine sales. The agreement sets the basis for creating two joint ventures pooling the companies' developments in Spain and the rest of Europe. Iberdrola will control both, owning 77% of the Spanish holding and 76% of the European portfolio outside its domestic market.

Both companies have agreed not to sell their stakes before December 31, 2010. After that, Iberdrola may act on an option to buy Gamesa's share if Gamesa decides to sell. While Gamesa is saying its aim is to exploit synergies in project development with Iberdrola, some insiders see the deal as the beginning of the turbine supplier's long rumoured withdrawal from wind plant development, which would allow it to focus on extending the vertical integration of its wind turbine manufacturing activities overseas as part of its internationalisation strategy, much of which rests on supplying Iberdrola Renovables.

Neither company specified exactly how much capacity is wrapped up in the two joint ventures. Iberdrola, however, says its global wind project development portfolio now stands at 52 GW, up from 42 GW previously. Gamesa was last month claiming a global portfolio for projects in development of 21 GW. In terms of operating capacity, Iberdrola says it had 7822 MW online up to end-March this year in Europe and North and Latin America.

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