Siemens Hasn’t Finished Revamp Yet as Board to Vote on Osram IPO

Siemens AG CEO Peter Loescher
Peter Loescher, president and chief executive officer of Siemens AG. Photographer: Pankaj Nangia/Bloomberg

Siemens AG Chief Executive Officer Peter Loescher, who four months ago announced an end to a dozen years of restructuring, isn’t done yet.

Siemens’s supervisory board will meet for an extraordinary meeting on March 28, two people with direct knowledge of the situation said. The 20-member panel may approve an initial public offering of the Osram lighting unit and fold the industrial solutions unit into other businesses, said one of the people, declining to be named because the plans are private.

“The lighting industry faces huge changes,” said James Stettler, an analyst at UniCredit in London, who estimates Osram has an enterprise value of about 5 billion euros ($7 billion). “China is subsidizing local manufacturers and the business will eventually be commoditized. It makes sense to exit Osram to avoid getting out too late.”

Loescher will be keen to avoid the pitfalls of keeping a business too long after a protracted exit from telecommunications resulted in costly overhauls in the past decade. The 53-year-old executive declared Siemens a “normal” company in November after tens of thousands of job cuts, a bribery scandal that swept out his predecessor and a divisional overhaul that focused Siemens on three main business areas.

Siemens shares have advanced 55 percent over the past year, compared with a 30 percent increase for General Electric Co. and

4.6 percent for ABB Ltd.

The supervisory board may sign off on a possible IPO of Osram and on folding the industrial solutions unit into other industrial businesses, one of the people said. Siemens spokesman Alexander Machowetz declined to comment on the board’s agenda.

Osram IPO

Siemens is weighing a share sale of the lighting business before the end of April, two other people familiar with the discussions told Bloomberg News on Feb. 28. The company has retained Deutsche Bank AG, Goldman Sachs Group Inc. and Commerzbank AG to help prepare the IPO, they said.

The German maker of power plants, scanners and trains is emerging from more than a decade of programs designed to streamline its focus on equipment for industrial, energy and healthcare clients and improving profitability. Profit from the main industrial, energy and healthcare sectors rose 4.3 percent to a record 7.79 billion euros in fiscal 2010, as economies recovered from the slump and manufacturers resumed investing.

Industrial head Siegfried Russwurm flagged looming changes to employees within his divisions in an e-mail last month. Industrial automation, drive technologies, and industry solutions may be among the areas affected, Russwurm said, adding that the moves would be designed to foster growth, rather than another “restructuring program.”

Margin Drag

Siemens has drawn criticism from investors and analysts for moving too slowly on restructuring. By the time Siemens agreed to transfer its handset units to Taiwan’s Benq Corp., the unit had lost so much money and market share that a turnaround failed and the new owner gave it up within a year. It moved a network unit into a joint venture with Nokia Oyj and the business has struggled to turn a profit since.

Industry solutions posted order growth of 4 percent in its fiscal first quarter through December, the slowest advance among the six industrial divisions. It was the only unit where sales fell, and had the weakest profit margin at 3.5 percent. The factory-automation division had the highest at 20.2 percent.

“We welcome any change that gets Siemens industry sector more exposure to services businesses, as these are less cyclical and have higher margins,” said Ben-Ari Elias, an analyst at Sterne Agee & Leach in New York said.

The industry solutions division has a history of underperforming. After losses in 2002 and 2003, stemming from increased competition from smaller-scale and lower-cost enterprises, the business went on to improve profitability over the next five years, reaching 6.2 percent in 2008.

Exiting Consumer Goods

A deal involving Osram would be Siemens’s biggest structural change since the company sold its VDO automotive unit to Continental AG for 11.4 billion euros in 2007. A sale would also bring Siemens close to a total withdrawal from consumer-oriented products, after giving up its mobile and cordless phones businesses.

Siemens’s other remaining consumer product is hearing aids, which the company considered selling before shelving the plan last year.

Osram is the world’s second-largest lighting maker after Royal Philips Electronics NV of the Netherlands. Its order intake and sales grew 14 percent in the most recent quarter. About 5,000 jobcuts helped improve the margin to 11 percent.

“It makes sense to exit the business now in order to avoid getting out too late, the mistake Siemens made in its telecommunications businesses,” Stettler said.

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