Siemens AG is preparing to offer more than $6.5 billion for Dresser-Rand Group Inc. as Europe’s largest engineering company looks to scupper a competing plan by Sulzer AG to merge with the U.S. oil-and-gas equipment maker, according to people familiar with the plan.
Siemens’s supervisory board may vote on whether to submit a formal bid of more than $85 a share at a Sept. 24 meeting, said one of the people, who asked not to be named as the matter is private. Dresser-Rand shares surged as much as 13 percent to $82.50. A Siemens spokesman declined to comment.
The Munich-based company has coveted Dresser-Rand, which makes compressors and turbines for the oil and gas industry, for at least three years. Siemens Chief Executive Officer Joe Kaeser is seeking more deals in that industry after saying that the German engineering company hadn’t made the most of the boom in shale gas extracted by hydraulic fracturing.
“A bid from Siemens may potentially have to be hostile as Dresser Rand’s management is engaged in talks with Sulzer about a possible agreed merger,” London-based Bloomberg Intelligence analyst Heenal Patel said in a report. “A deal of this size would be Siemens’s largest foray into the oil and gas equipment space and second-largest on record after the $7 billion acquisition of Dade Behring in 2007.”
Dresser-Rand shares were up 12 percent at 9:35 a.m. in New York while Sulzer dropped 4.4 percent in Swiss trading and Siemens declined 1 percent in Germany.
Dresser-Rand is working with Morgan Stanley to prepare for possible takeover bids from companies including Siemens, people with knowledge of the matter said last month. Sulzer said this week it is in non-exclusive talks with Dresser-Rand about a potential merger. Manager Magazin reported earlier today that Siemens may offer more than $6 billion.
A bid by Siemens would pitch the German company against its former Chief Executive Peter Loescher, who is now chairman of Sulzer. Kaeser became CEO in August 2013 after predecessor Loescher slashed profit targets five times in his six-year tenure.
Siemens had first cultivated its interest in Dresser-Rand under Loescher’s leadership. The Austrian was appointed Sulzer chairman earlier this year after becoming chief executive of Renova Management AG, a holding company for Viktor Vekselberg, Sulzer’s biggest shareholder.
Renova said today it holds 4.99 percent in Dresser-Rand. Renova spokesman Rolf Schatzmann declined to comment on when the company bought the stake.
Siemens has already spent $1.3 billion this year buying most of Rolls-Royce Holdings Plc’s energy business, which also makes gas turbines and compressors. Kaeser told Bloomberg News in a July interview he had “firepower” for takeovers, after he unsuccessfully tried to compete with General Electric Co. for Alstom SA’s gas turbines business.
As more facilities spring up across the U.S. to extract, transport and store shale oil and gas produced from hydraulic fracturing, or fracking, Siemens must keep up to expand its own offering, Kaeser said at the time. Supplying more equipment would give the company a lock on lucrative, long-term service contracts, he said.
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. Dresser-Rand, which has the largest installed base of compressors serving the energy industry, has been seen as a takeover candidate for more than year.
GE, Cameron International Corp. and National Oilwell Varco Inc. could be other potential buyers of Dresser-Rand, analysts have previously said.