Frankfurt: Germany’s Siemens has agreed to buy US oilfield equipment maker Dresser-Rand for $7.6 billion (Dh27.90 billion) in cash, aiming to catch up with arch-rival General Electric in a booming US shale gas market.
The acquisition, which ranks among the biggest in the history of the German industrial group, will strengthen Siemens’ position in the United States, its weakest region, and focus the group more tightly on its industrial customers.
Siemens embarked on a corporate overhaul in May dubbed “Vision 2020”, seeking to make up ground on more profitable competitors such as Switzerland’s ABB as well as U.S-based General Electric (GE), while reducing its exposure to more cyclical consumer businesses where it has had limited success.
As part of that drive, the group said on Monday it had also agreed to sell its stake in household appliances joint venture BSH to partner Robert Bosch, bringing in €3 billion ($3.9 billion or Dh14.13 billion) to help finance the Dresser-Rand deal.
“The Dresser-Rand offer is high but can be justified in our view due to the very good fit into Siemens target to strengthen the US and oil & gas business,” DZ Bank analyst Jasko Terzic wrote in a research note.
Siemens’ US energy business made €3.7 billion of revenues in its last fiscal year, compared with the roughly $20 billion generated by GE’s US operations in oil and gas alone.
Terzic said the deal put Dresser-Rand’s enterprise value (equity plus debt) at about 16 times earnings before interest, tax, depreciation and amortisation (Ebitda), compared with around 8.5 times Ebitda for peers.
Reuters had reported on Sunday that the companies were nearing a deal.
Siemens has long coveted Dresser-Rand, but shrank in the past from making a formal bid, balking at its high valuation.
The German group appears to have been spurred into action by Swiss pump maker Sulzer, which had proposed an all-stock merger with Dresser-Rand, according to people familiar with the matter.
Sulzer said on Monday it had ended its talks with Dresser-Rand, but some analysts said there was still a chance of a rival emerging to challenge Siemens’ offer.
The Financial Times said on Friday GE was considering whether to make a bid for Dresser-Rand, citing people familiar with the matter. One source close to the matter told Reuters that while GE had made contact with Dresser-Rand, it was unlikely to pursue a bid. Siemens lost out to GE in a bidding war for the energy business of France’s Alstom in June.
At 0945 GMT, Siemens shares were down 0.6 per cent, slightly weaker than Europe’s blue-chip equities index. Sulzer shares were down 4.2 per cent.
“PERFECT FIT”
Siemens said its $83 per-share bid was unanimously supported by Dresser-Rand’s board of directors. The offer compares with a Friday closing price of $79.91, which was up 27 per cent over the past three months on takeover speculation.
“As the premium brand in the global energy infrastructure markets, Dresser-Rand is a perfect fit for the Siemens portfolio,” Siemens Chief Executive Joe Kaeser said.
A booming US shale gas market has driven a surge in investment by energy companies, creating demand for the compressors and turbines made by companies such as Dresser-Rand.
Annual capital expenditure on oil, gas and coal has more than doubled in real terms since 2000 and surpassed $950 billion in 2013, according to the International Energy Agency.
The Dresser-Rand deal will eclipse Siemens’ acquisitions of recent years. It bought Dade Behring for $7 billion in 2007 under Kaeser’s predecessor Peter Loescher - now the chairman of Sulzer - in a deal that was widely criticised as overpriced.