Total To Sell More Assets, Cuts Oil Output Target

Germany’s Siemens has agreed to buy U.S. oilfield equipment maker Dresser-Rand for $7.6 billion in cash, aiming to catch up with arch-rival General Electric in a booming U.S. 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 euros ($3.9 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 U.S. and oil & gas business,” DZ Bank analyst Jasko Terzic wrote in a research note.
Siemens’ U.S. energy business made 3.7 billion euros of revenues in its last fiscal year, compared with the roughly $20 billion generated by GE’s U.S. 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 AG, 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 percent, slightly weaker than Europe’s blue-chip equities index. Sulzer shares were down 4.2 percent.
“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 percent 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 U.S. 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.

Siemens filled another gap in its energy equipment portfolio earlier this year, buying small gas-turbine assets from Rolls-Royce for 950 million euros. CEO Kaeser indicated at the time that expansion in the United States was next on the agenda.
According to JP Morgan analysts, Siemens paid 12.5 times earnings before interest and tax (EBIT) for the Rolls-Royce assets, compared with the 20 times it is now offering to Dresser-Rand, underscoring the rich valuation for the deal.
Siemens said it was aiming for more than 150 million euros in annual synergies by 2019 from the Dresser-Rand transaction, which complements its business in turbo compressors, downstream and industrial applications as well as larger steam turbines.
The German group expects to close the deal by summer 2015, while it aims to wrap up the sale of its stake in BSH in first half of 2015, ending a more than 45 year alliance in household appliances.
Siemens has had a chequered history in consumer markets. It sold its mobile phone business last decade, which later went bust. It exited the Fujitsu Siemens Computers joint venture in 2009, and spun off light-bulb maker Osram in 2013.
BSH will pay out 250 million euros to each of its owners, Bosch and Siemens, before the transaction is completed.

Bosch, a Stuttgart-based automotive supplier, said it was on the lookout for more acquisitions after buying the rest of BSH.
Analysts said Sulzer was also likely to still target deals, given its net cash of about 800 million Swiss francs.