ABB Ltd. Chief Executive Officer Joe Hogan is building on his deal-making credentials to bolster the Swiss engineering conglomerate with acquisitions, fueling earnings and eclipsing the performance of competitors.
Hogan is set to report a 35 percent gain in fourth-quarter net income to $944.6 million tomorrow, analysts surveyed by Bloomberg estimate. Sales probably gained 12 percent to $10.26 billion. Investors may reap a dividend payout of 0.70 Swiss francs for each share, after ABB’s stock gained 15 percent in six months, outperforming its European peers.
The Pittsburgh-born executive has ramped up the pace of large-scale acquisitions, which analysts estimate contributed to more than 50 percent of ABB’s sales growth last quarter. ABB’s strategy contrasts with a dearth of deals by Siemens AG, its closest competitor in Europe. Hogan said last month the company has scope for more purchases.
“He is an M&A guy and the board is behind him,” said Martin Prozesky, an analyst at Sanford C. Bernstein in London. “He is very comfortable with the processes.”
Hogan, who joined ABB in 2008 from General Electric Co., announced the purchase of engineering company Thomas & Betts Corp. for about $3.7 billion last month, the second-biggest deal in the Zurich-based company’s history after Baldor Electric Co., for which Hogan paid $4.15 billion in 2011.
Antonio Ligi, a spokesman for ABB in Zurich, and Guenter Gaugler, a spokesman for Siemens in Munich, had no comment.
Hogan joined the Swedish-Swiss engineering company with a track record for deals after overseeing the $11.6 billion purchase of Amersham Plc at GE, which still ranks as the company’s largest-ever acquisition. At ABB, he is backed by Sweden’s Wallenberg family, the company’s largest investor.
Since 2010, ABB spent three times more on acquisitions than Schneider Electric SA, and four times more than Siemens, data compiled by Bloomberg show. The company has allocated as much as $18 billion for transactions until 2015, Hogan has said.
Hogan has made three acquisitions exceeding $1 billion since 2010, with the purchases of Baldor and Ventyx Inc. adding almost $2 billion to revenue. Ventyx, a U.S. maker of software to manage power grids, was ABB’s first first major purchase in more than a decade and helped Hogan triple the company’s potential client base for energy management systems.
The Thomas & Betts purchase will help ABB expand in the U.S., the world’s largest market for low-voltage gear and ABB’s most profitable line of equipment. The deal is the third-largest by a western European industrial company since the beginning of last year, the data compiled by Bloomberg show.
Unlike Hogan, Siemens CEO Peter Loescher, also a former GE executive, has been sitting out major deals. He joined the Munich-based company a year before Hogan came to ABB, and was initially tasked with keeping Siemens whole after a bribery scandal risked the existence of Europe’s biggest industrial.
Among the few purchases that Loescher has attempted, some have soured. Siemens took a 1.2 billion-euro impairment charge in 2010 on its $7 billion acquisition of Dade Behring Holdings Inc. In 2009, Loescher bought Solel Solar Systems for $418 million to ramp up the solar thermal power business, and booked charges of more than $300 million at the unit two years later.
Siemens should stick with small deals because of the risk involved with integrating a major purchase, said William Mackie, an analyst at Berenberg Bank in London.
“It would be madness for Siemens to do a large deal now,” he said. “Not done right, it’s a recipe for wasting money.”
By the end of last year, Siemens had accumulated $11.63 billion in cash, fanning speculation that the company may seek a major takeover. Loescher wants to lift revenue by more than a fifth to 100 billion euros, a target analysts say will necessitate acquisitions.
“ABB has shown Siemens a template formula for acquisitions” because the Swiss company has been more successful with absorbing its takeovers, said Nicholas Heymann, an analyst at William Blair & Co. in New York. “Siemens hasn’t been able to demonstrate what ABB was able to do.”
Unlike Siemens, which generates annual revenue more than twice ABB’s and has a workforce that’s more than three times as big, ABB lacked critical mass in the U.S. That contributed to the rationale of the Thomas & Betts deal, Hogan said. By contrast, the U.S. is the biggest market by sales for Siemens.
ABB’s sales are set to growth for a fifth consecutive quarter, and net income is expected to be the highest in 9 quarters, the analyst survey by Bloomberg showed. Siemens on Jan. 24 reported net income that dropped 27 percent, missing analyst estimates, as new orders dropped.
One prerequisite for Siemens to pursue acquisition is for its divisions to be in “full control” over their businesses, Chief Financial Officer Joe Kaeser said last month. That’s after the company booked charges at its power transmission and transportation divisions.
“The more charges we have, the less I would feel compelled to put another burden on our organization,” Kaeser said. “There’s enough work we have with our own topics.”