FRANKFURT Siemens (SIEGn.DE) is set to offer around 1.3 billion euros ($1.6 billion) for Ansaldo Energia to extend its reach in the gas turbines market, two bankers familiar with German conglomerate's strategy said.
Ansaldo Energia, a joint venture between Italian group Finmeccanica (SIFI.MI) and U.S. fund First Reserve, also makes steam turbines and generators for the power market.
Finmeccanica, which has said previously it was looking to sell assets worth about 1 billion euros, would not comment earlier this month on reports it was talking to groups including Siemens for its energy business and Hitachi for its rail-signaling systems unit.
Finmeccanica and Siemens declined comment on Friday.
U.S. fund First Reserve bought 45 percent of Ansaldo Energia last year in a deal that valued the firm at 1.2 billion euros. It has an option to buy the remaining stake if Finmeccanica decides to sell.
For Siemens, which has been snapping up small companies recently, Ansaldo Energia would be its biggest deal since it bought U.S. diagnostics company Dade Behring for $6 billion in July 2007.
Ansaldo Energia posted 2011 adjusted earnings before interest and tax (EBIT) of 124 million euros on sales of 1.2 billion. Analysts said it had customers in areas such as Algeria, Egypt, Syria and Turkey.
Siemens, whose products range from trains and windmills to light bulbs and hearing aids, has been on an acquisition path since last year, mostly to fill gaps in technology for power grids and automation industries.
Chief executive Peter Loescher told analysts in May it was focused on organic growth and would only make bolt-on acquisitions with a single deal worth up to 2 billion euros.
Siemens is playing catch-up with market leader General Electric (GE.N) in the gas turbines market and expects a strong pick-up in the U.S. market from 2014, analysts said.
"Siemens is seeking to consolidate the power generation market. There has to be some consolidation in this market. Orders are going to slow down," a London-based analyst said, declining to be identified.
"Ansaldo is a very, very small company, and for Siemens it will not really move the needle, but Siemens will get access to those markets where it is not present," he said.
Siemens's gas and steam turbines businesses are housed within its fossil power generation unit, whose near doubling of profit last year to 1.5 billion euros accounted for a third of the energy division's income.
Analysts while said valuations were difficult to make in a market that has no pure player, they have been falling recently.
"In general, valuations for power equipment producers is depressed. Just look at Alstom (ALSO.PA) and ABB ABB.LM," said a German analyst who declined to be named. "For Siemens, Ansaldo Energia means buying production capacities," he said.
Siemens and GE combined have around 80 percent of the gas market worldwide, with the U.S. rival slightly ahead at 45 percent, while French group Alstom has 8-15 percent. The rest are scattered among smaller players in the aerospace industry, such as Finmeccanica.
($1 = 0.8156 euro)
(Additional Reporting by Jens Hack in Munich, Stefano Bernabei in Rome, and Philip Baillie in Milan; Editing by Dan Lalor)