Siemens AG Chief Executive Officer Peter Loescher only needed two hours to clinch one of the most sweeping revamps in the engineering company’s 164-year history.
Siemens plans to sell shares in its Osram lighting unit later this year, slicing off of a business with sales of 4.68 billion euros ($6.59 billion) in 2010 and 40,000 employees. The Munich-based company will also create a fourth division that focuses on infrastructure and cities, bundling products such as trains, airport services and building technologies.
Giving up control of the 105-year-old Osram underscores Loescher’s clout to see through extensive changes at the engineering company, as he seeks to narrow the focus on energy, health care, infrastructure and industry tools. The plan to sell Osram, approved by the supervisory board yesterday at a two-hour gathering, follows a sale of a computer-services business earlier this year, a unit that had racked up years of losses.
“It makes lots of sense and will highlight why Siemens is one of the best organized and broadest infrastructure suppliers in the world to help developing economies modernize their countries,” said Nicholas Heymann, an analyst with Sterne Agee & Leach Inc. in New York. He predicts Siemens will generate more than 5 billion euros from the Osram IPO.
Among the Biggest
Siemens fell as much as 1.02 euros, or 1.1 percent, to 93.25 euros in Frankfurt, and traded at 93.61 euros as of 11:47 a.m., for a market value of about 85.5 billion euros.
Osram has an enterprise value of 5 billion euros to 7 billion euros, according to analyst predictions. An initial public offering stands to be one of the biggest listings in Germany in a decade, when the country’s average IPO had a value of 119.5 million euros, according to data compiled by Bloomberg.
There were 203 initial public offerings in Germany in the last 10 years. The largest IPO in that time was of Tognum AG, a maker of industrial engines that was sold by Daimler AG for 1.8 billion euros, the Bloomberg data show.
Siemens said it will retain a minority stake in Osram. The company will remain a “long-term anchor shareholder,” after selling more than 50 percent of the business, Chief Financial Officer Joe Kaeser said on a conference call today.
The disposal will swell cash reserves beyond the 15.6 billion euros that Siemens hoarded at the end of last year, setting the stage for potential acquisitions after years of abstaining from takeovers. Loescher has shunned acquisitions and focused instead on overcoming a bribery scandal that haunted Siemens for years and felled his two predecessors.
“We are looking at opportunities within our core sectors,” Loescher said in an interview with Francine Lacqua on Bloomberg Television’s “On the Move,” when asked about potential acquisitions.
Siemens may inject part of the proceeds back into Osram to ensure a “rock-solid” capital structure for Osram, with a credit rating target of between A- and BBB+, Kaeser said.
The revamp contrasts with Loescher’s assurance four months ago that more than a dozen years of restructuring had come to an end and that Siemens would now be a “normal” company with higher profitability and predictable dividend payouts.
Adding a Pillar
When Loescher took over, he recast Siemens along three main so-called sectors that focused on health care, industry and energy. The structure was skewed toward the industry unit, which accounted for almost 50 percent of total sales.
Loescher said the new business structure will let Siemens target 100 billion euros in overall business volume “in the next few years.” Siemens defines business volume as order intake plus sales, divided by two. By that calculation, business volume stood at 78.57 billion euros in the last fiscal year.
Osram, which competes with Royal Philips Electronics NV’s lighting unit, had operating profit of 569 million euros last year. Siemens said analysts estimate the total market for components, luminaires and lighting at about $45 billion. The size of the market will likely grow to about $65 billion by 2016, Siemens said yesterday.
Wolfgang Dehen, who runs the energy unit, will become head of Osram, while Strategy Chief Roland Busch will lead the new unit, called Infrastructure & Cities. Siemens will enlarge its management board by two members, from eight now.
No More Consumers
Dehen, who will leave Siemens’ management board, initially ran the VDO automotive division at Siemens, before the company sold the business to Continental AG in 2007 for 11.4 billion euros. Osram CEO Martin Goetzeler will become chief operating officer. Michael Suess, who runs the fossil power unit, will succeed Dehen at the helm of the energy division.
“We want to play a decisive role in shaping the future of the lighting market with green, energy-efficient solutions and products,” Dehen said in the statement.
The planned Osram listing accelerates Siemens’s shift away from consumer-based products, after the company exited industries including phones and consumer electronics. Siemens products range from high-speed trains to power plants to medical scanners and hearing aids.