Siemens to Have Osram IPO Resolve Tested as Valuations Plunge
Siemens AG (SIE) faces a decline in the valuations placed on its Osram lighting unit by as much as 50 percent, testing the will of the German engineering company to pursue an initial public offering, analysts including SRH Alsterresearch’s Oliver Drebing said.
UniCredit analyst James Stettler has cut his estimate for Osram’s value by 32 percent to 3.42 billion euros ($4.9 billion), while Drebing shaved his by almost 600 million euros to 4.31 billion euros on July 28. Sterne Agee & Leach Inc. analysts including Ben Elias on March 29 had put Osram’s value at as much as 7.5 billion euros.
Siemens’ plan to exit Osram, in what could be Germany’s largest share sale in a decade, is coinciding with a faltering economic recovery that’s hurting sales of bulbs and lighting systems. Drebing estimates the threshold Osram valuation, at which Siemens would go ahead with an IPO, is about 4 billion euros. Osram is the world’s No. 2 lighting supplier.
“The third quarter was a very bad one for Osram, but I believe that was a slip-up,” Drebing said. “In the end it’ll be a question of how badly Siemens wants to IPO Osram.”
The business is now worth 3.91 billion euros, down from a 5 billion-euro estimate, according to JPMorgan Cazenove’s Andreas Willi.
Economic growth is slowing as Europe’s debt crisis, U.S. political haggling over the nation’s debt limit and monetary tightening in China combine to restrain the global recovery. Order growth for plants and machinery in Germany was 1 percent in June, the slowest pace in 17 months, Germany’s VDMA machinery maker’s association said on Aug. 1.
Osram posted quarterly sales of 1.16 billion euros through June, little changed from a year earlier. The unit’s operating income dropped 48 percent to 61 million euros, as higher input costs and pricing pressure narrowed margins.
The deterioration is mirrored at larger rival Royal Philips Electronics NV. Second-quarter sales of lighting at the Amsterdam-based company fell 4.4 percent to 1.78 billion euros. Earnings before interest, taxes and amortization fell 52 percent to 101 million euros.
Philips on July 18 cut its outlook for sales growth in the global lighting market to as little as 5 percent per year until 2015 from as much as 9 percent. It also cut its margin target for lighting to between 8 percent and 10 percent, from 12 percent to 14 percent.
As recently as June, Osram’s enterprise value had been estimated at 6.18 billion euros by Royal Bank of Scotland analysts including Daniel Cunliffe.
Shares of Cree Inc. (CREE), which competes with Osram in light- emitting diodes, have fallen by about half this year. Cree’s valuation, measured by enterprise value as a multiple of earnings before interest, taxes, depreciation and amortization, has fallen to 7.8 compared with 20.4 a year ago.
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