Dresser-Rand Group Inc. (DRC), the U.S. maker of oilfield equipment, is working with Morgan Stanley to prepare for possible takeover bids from companies including Siemens AG (SIE), people with knowledge of the matter said.
While Dresser-Rand isn’t actively pursuing a sale, the company retained the financial adviser after potential suitors expressed interest, said the people, who asked not to be identified because the information is private. Siemens, which is looking for oil and gas acquisitions, has been considering a bid for some time, the people said. Sulzer AG (SUN), the Swiss pumpmaker, also previously discussed a potential merger with Dresser-Rand, the people said.
“While shares of Dresser-Rand may look expensive on near-term earnings, a strategic buyer would likely be willing to pay a rich multiple given Dresser-Rand’s top-tier product offering, robust aftermarket footprint, and solid long-term cash flow profile,” Chase Jacobson, an analyst at William Blair & Co., said in a note. He cited the trading multiple of 12.6 times 2014 earnings before interest, taxes, depreciation, and amortization.
The company would probably attract interest from other European and U.S. companies if it decides to sell, the people said. CEO Vincent Volpe Jr. isn’t interested in a sale and is seeking defense advice from Morgan Stanley (MS), one of the people said. In the past, Volpe’s high price expectations have been the biggest obstacle to a takeover, other people said.
Dresser-Rand, based in Houston and Paris, was little changed today after climbing 9 percent to $62.96 yesterday in New York, giving it a value of $4.8 billion. Sulzer gained as much as 1.4 percent to 119.30 Swiss francs, while Siemens fell 0.8 percent to 88.54 euros.
Growing energy needs and a boom in unconventional oil make Dresser-Rand’s compressors and turbines -- which are used to extract, move and process oil and gas -- attractive to rivals and larger industrial conglomerates. The company reported second-quarter earnings and revenue below analysts’ estimates.
Mary Claire Delaney, a spokeswoman for New York-based Morgan Stanley, declined to comment, as did Blaise Derrico, a spokesman for Dresser-Rand, and Siemens’ Marc Langendorf.
“As a matter of principle we neither comment on rumors nor disclose details about possible M&A targets,” Sulzer spokeswoman Verena Goelkel said by e-mail.
After a failed bid to acquire Alstom SA’s gas turbines business, Siemens has “huge” firepower to pursue deals intended to capitalize on the boom in natural gas extracted from hydraulic fracturing, Chief Executive Officer Joe Kaeser said in a July interview. He said in a conference call that month that Dresser-Rand is one of a number of companies that could help its business.
Siemens has been evaluating a bid for Dresser-Rand since at least 2011, with Lazard Ltd. as an adviser, people familiar with the discussions said last year, and Germany’s Manager Magazin reported last month that the Munich-based company is preparing an offer.
Siemens, General Electric Co., Cameron International Corp. and National Oilwell Varco Inc. could be among potential buyers of Dresser-Rand, analysts have previously said.
Jeffrey Ubben, founder and CEO of ValueAct Capital Management LLC, said in April he saw several potential strategic buyers for Dresser-Rand, including National Oilwell Varco. The activist fund trimmed its stake in the company to about 2 million shares, or 2.6 percent of shares outstanding, according to a July filing, from more than 5 million shares at the end of the first quarter.
Sulzer needs to deploy cash proceeds of 850 million francs ($935 million) from the sale of a coatings unit and CEO Klaus Stahlmann says the board supports his preference for spending cash on growth, including acquisitions, over a share buyback. Sulzer is seeking acquisitions, including transformational deals in rotating equipment such as pumps and compressors and could, with leverage, do deals worth a “couple of billion” francs, Stahlmann has said.
Buying or merging with Dresser-Rand would mean revisiting a market that Sulzer exited in 2000, when it sold its Turbomachine business to MAN Group. Sulzer still has a unit that services turbines and compressors. While Dresser-Rand would fit what Sulzer’s looking for, Siemens has more cash and Dresser-Rand shareholders would probably prefer that deal, one of the people said.
Sulzer’s largest shareholder, Russian billionaire Viktor Vekselberg, also controls the chairmanship and another board seat. The company’s shares haven’t yet recovered to the levels of April 2007, when Vekselberg’s investment company bought a stake. Chairman Peter Loescher, who was ousted as Siemens CEO last year, became head of Vekselberg’s Swiss investment vehicle Renova Management AG in March.
“Shareholders normally go for the higher bid, but for Dresser-Rand management a Sulzer merger could be more attractive as it creates a leading and focused rotating equipment player,” said Fabian Haecki, an industrials analyst at Bank Vontobel AG in Zurich. “At Siemens, it would just be one division of a big conglomerate.”