Wood Group and Siemens AG have entered into an agreement to form a joint venture ("JV") consisting of the Maintenance and Power Solutions businesses of Wood Group GTS (excluding its Rolls Wood Group, TransCanada Turbines and Sulzer Wood joint ventures) and Siemens TurboCare business unit ("TurboCare") which provides aftermarket gas turbine, steam turbine and generator design, repair and manufacturing services.
The JV is expected to deliver annual net synergies to Wood Group of around $15m by year three. The shareholding of the JV will be split 51%:49% Wood Group:Siemens. Wood Group currently expects that a further payment of up to approximately $70m will be due from the JV to Wood Group.
By teaming up with Siemens, the Aberdeen-based engineer hopes to boost the division's competitiveness."The risk profile in our project group within gas turbine services was too high with large lump-sum projects," Bob Keiller, chief executive of Wood Group, told analysts on a conference call. Keiller said the joint venture was the "best option" and offered more long-term value for shareholders than a direct sale.
The Siemens and Wood Group units have combined assets of $1.1 billion. The joint venture is expected to deliver annual cost savings to Wood Group of around $15 million within three years. Margins should improve but revenue will be lower next year.
Siemens, which will have 49 percent of the joint venture, said the venture would enhance the position of both companies in a growing market for gas turbine services.
The head of Wood Group's gas turbines division, Mark Dobler, will transfer to and lead the joint venture.