Siemens Picks a Losing Battle

It's time for Joe Kaeser to accept Osram's plans -- or sell up

Say you're an investor and a company you hold a sizable stake in announces a new strategy. You think the plan is a bad idea, and the shares tumble, indicating others share your point of view. Do you?

  • a) sell your shares and cut your ties with the company;
  • b) retain your stake and trust management to deliver;
  • c) try to oust the CEO;
  • d) something else entirely.

Siemens was faced with exactly this dilemma when its former subsidiary Osram announced in November a 1 billion-euro ($1.1 billion) investment in a new light-emitting diode chip plant in Malaysia. The fear: Osram is shifting to a market dominated by low-cost Asian and Taiwanese producers at the expense of its current profitable niche products such as car headlights.

The shares slumped by a third, erasing more than 300 million euros from the value of Siemens' 17 percent stake.  Siemens CEO Joe Kaeser quickly made his displeasure known and chose option (c) -- a coup.

Lights Out

Osram shares plunged following a strategy update in November

Source: Bloomberg

In February, Siemens dispatched an envoy to Osram's AGM to orchestrate what was, in effect, a no confidence vote in its CEO, Olaf Berlien. Berlien survived, and on Tuesday Osram announced that CFO Klaus Patzak would leave the company due to his "differing views regarding the strategic direction of the company".

Patzak's departure is a blow for Kaeser and makes his broadside against Osram's CEO look poorly conceived.

How so? Patzak and Kaeser have worked closely together for years. Kaeser was Siemens' CFO before he became CEO in 2013 and Patzak held senior roles in corporate finance at Siemens between 2002 and 2011.

Clearly, they share the same skepticism about Osram's investment plans. It's not such a big leap to imagine that Kaeser would prefer Patzak and not Berlien was in charge.

To be sure, all shareholders have a right to tell management if they think they're pursuing the wrong strategy. Siemens has a seat on Osram's supervisory board seat, so it can hardly claim it lacks access to the management board.

But Osram hasn't been a Siemens subsidiary since it was spun off in 2013. Kaeser shouldn't therefore treat the lighting company like it is still part of his fiefdom.

If common sense prevailed here, Kaeser would sell Siemens' Osram stake as soon as possible -- option "a".

Osram raised its forecasts for annual revenue and margins earlier this month, supporting a rally in the shares. That means Siemens' loss has been cut in half to a more palatable 140 million euros or so.

There's a risk however that the Siemens CEO decides he won't play nicely.

Kaeser is a consummate power player who has centralized key functions like M&A and investor relations under his control. He's accustomed to getting his own way.

But any effort to further destabilize Osram's CEO risks looking like a bad case of sour grapes.

If Kaeser is really convinced he knows how to run Osram better, Siemens should make a public tender offer for the Osram shares it doesn't already own. Having been cast aside in 2013, Osram would rejoin the Siemens family.

This isn't going to happen, of course. But Kaeser is running out of other options. It's beginning to look his only option is (d)  -- and that stands for "defeat."

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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    Chris Bryant in Frankfurt at

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