By Chris Bryant in London and Ed Hammond in New York
Siemens is poised to increase its presence in the US oil and gas industry and end its involvement in consumer goods via a pair of multibillion-euro transactions that its new chief executive hopes will drive a turnround in profitability.
Siemens plans to acquire Dresser-Rand, the US compressor maker, for €5.8bn in cash and will sell a 50 per cent stake in BSH Bosch und Siemens Hausgeräte, its household appliances joint venture, to Bosch for €3bn.
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By acquiring Dresser-Rand, Siemens hopes to profit more from the investment boom triggered by discoveries of shale gas in the US.
Meanwhile, the German engineering group that once manufactured mobile phones and lightbulbs is ceasing its involvement in consumer goods by handing full control of a washing machines and dishwasher unit to Bosch.
Analysts described the proposed Dresser-Rand purchase, which would be one of Siemens’ largest acquisitions, as “expensive” but a good strategic fit.
Since taking up the job just over a year ago after Siemens issued a succession of profit warnings, chief executive Joe Kaeser has sought to close a profitability gap with rivals General Electric and ABB by tightening Siemens’ strategic focus on electrification and factory automation.
In May he hired Lisa Davis from Royal Dutch Shell to head Siemens’ energy business and indicated the company would seek acquisitions in oil and gas.
In an unusual move for an engineering company whose power base has traditionally been southern Germany, Ms Davis is based in Houston, Texas. In May Siemens agreed to acquire Rolls-Royce’s aero-derivatives turbine business for €950m to further expand the oil and gas business. But Siemens lost out to General Electric in the battle to acquire Alstom’s energy business earlier this year, and the FT reported on Friday that GE also held talks with Dresser-Rand.
Siemens’ $83 a share offer has gained the endorsement of Dresser-Rand’s board of directors but is subject to approval by its shareholders. Mr Kaeser therefore said that although he could not rule out a rival bid emerging, he did not think it likely. GE declined to comment.
Under former chief executive Peter Loescher, Siemens held back from large acquisitions. Its last major deal – the $7bn acquisition of Dade-Behring in 2007 – proved a disappointment.
Swiss pumpmaker Sulzer, where Mr Loescher is now chairman, also held talks with Dresser-Rand but yesterday said those discussions were over.
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Dresser-Rand had about $3bn in sales last year but North America accounted for only 31 per cent of the total. So the deal will not by itself “propel Siemens to become a top-tier supplier to the local oil and gas industry”, said Andreas Willi, analyst at JPMorgan.
GE’s oil and gas business generated about $17bn in revenue last year, compared with the €5.2bn in oil and gas sales booked by Siemens.
After several years of stellar growth analysts expect US oil and gas investments to slow in 2014 and 2015. Hence, Siemens’ investment “comes late in the cycle”, Mr Willi said.
Still, Siemens noted about half of Dresser-Rand’s sales are related to services purchased by customers that have already installed equipment. This tends to be reliable repeat business and highly profitable.
Including BSH, Siemens will have generated more than €5bn in disposal proceeds since 2012 by exiting non-core businesses, Citi analysts said.
Siemens had €8.2bn in cash and equivalents at the end of June and said the Dresser-Rand deal would not affect an ongoing €4bn share buyback. The Dresser-Rand transaction is expected to close in 2015.
Additional reporting by Arash Massoudi and Ed Crooks