This is an archived article that was published on sltrib.com in 2016, and information in the article may be outdated. It is provided only for personal research purposes and may not be reprinted.

Siemens and Gamesa Corp. Tecnologica agreed to combine their wind-turbine manufacturing businesses, creating a company that will dominate the industry and speed up consolidation triggered by competition and price pressures.

Europe's largest engineering company will own 59 percent of the capital of the new business, Gamesa said on its website Friday.

Based in Zamudio, Spain, Gamesa gets 41 percent and a 1 billion-euro ($1.1 billion) cash payment of 3.75 euros a share from Siemens. That represents 26 percent of Gamesa's share price on Jan. 28 before the two disclosed their negotiations.

Together, the two would have about 69 gigawatts of turbines installed worldwide, putting them in a position to surpass Vestas Wind Systems A/S and General Electric.

While worldwide clean-energy installations have hit successive records in recent years, a boom in manufacturing capacity and improvements in the technology have narrowed margins for making the machines.

Companies are having to compete on a global scale, with Xinjiang Goldwind Science & Technology of China taking the biggest market share last year.

"The combination of our wind business with Gamesa follows a clear and compelling industrial logic in an attractive growth industry, in which scale is a key to making renewable energy more cost-effective," Siemens Chief Executive Joe Kaeser said.

Gamesa shares jumped 5.6 percent in Madrid, giving it a market value of 5 billion euros. Siemens rose 0.6 percent in Frankfurt trading. Vestas rose 3.6 percent in Copenhagen, partly because it won what could be its biggest-ever order.

The equity value of the wind businesses of Gamesa and Siemens would be 4 billion euros and 5.8 billion euros respectively, based on the market price of the Gamesa shares on Jan. 28 and an agreed exchange ragio, Gamesa said in a filing. That would give a combined equity value of 9.8 billion euros.

Gamesa Chairman Ignacio Martin said the move would boost earnings and have positive cash flows from its inception.

"We will continue to work as before, albeit as part of a stronger company and with an enhanced ability to offer all of our customers end-to-end solutions," he said in a statement.

The two have identified cost savings of 230 million euros that will be made within the next four years as a result of the deal.

The combined company will have an order backlog of 20 billion euros, annual revenue of 9.3 billion euros and earnings before interest and taxes of 839 million euros. It will be based and listed in Spain, though the headquarters of the offshore-wind unit will be in Hamburg and Vejle, Denmark.

The combination will roil the rankings of the top wind turbine makers, which already were upset by the emergence of Goldwind as the top supplier by market share last year. The Chinese manufacturer pushed past Western rivals led by Vestas and GE.

By market share, Siemens and Gamesa each had 5.3 percent of installations last year, according to Bloomberg New Energy Finance data. Their combined 10.6 percent share would rank the new entity third behind Goldwind and Vestas.

Siemens pointed to the 69 gigawatts of turbines that it and Gamesa have installed worldwide, a measure that gives a sense of the revenue they may get from servicing machines.

Based on that and Bloomberg New Energy Finance data for 2015, the new company would edge past its competitors. Vestas disputed the reading, noting that it currently has 75 gigawatts of installed turbines.

Gamesa's network of installed turbines is attractive to Siemens, which has been trying to expand revenue from service contracts. The German company leads in machines designed for use offshore, while Gamesa specializes in onshore wind.

Europe's turbine makers already have been consolidating. Last month, Nordex of Germany completed the purchase of the turbine-manufacturing assets of Acciona, another Spanish wind company.

Vestas fired thousands of workers and closed factories to revive its profit after price pressures led to three years of losses that ended in 2014.

The Spanish utility Iberdrola currently holds 20 percent of Gamesa and will have 8 percent of the combined company. The transaction is expected to be completed in the first quarter of 2017, assuming regulators approve.

Areva has a venture with Gamesa called Adwen that's developing an offshore-wind turbine and has contracts to build seven wind farms off the French and German coastlines.

Gamesa said Areva waved its contractual restrictions to allow the deal to progress and will receive options to buy or sell its stake in the venture over the next three months.

"We basically see a new kid on the block arriving to the offshore scene," said Keegan Kruger, a wind analyst at Bloomberg New Energy Finance. "Siemens faces stiff competition from GE and from MHI Vestas," which is a joint venture in offshore wind owned by Vestas and Mitsubishi Heavy Industries of Japan.

For Siemens, the wind division is the smallest of its eight operational businesses, and also has the lowest profitability target.

The Spanish and German companies also complement each other in the markets they serve. Gamesa is strong in South America and India as well as being the biggest foreign supplier in China. Europe, the Middle East, Africa and North America meanwhile account for almost 90 percent of Siemens' customer base, according to BNEF.

"As a leading wind power player especially in emerging markets, Gamesa is a perfect partner for us," said Lisa Davis, member of the managing board of Siemens. "Teaming up will enable Siemens and Gamesa to offer a much broader range of products. The move will put Siemens and Gamesa in the best position to shape the industry for lower cost of renewable energy to the consumers."