Siemens CEO Grows Wary as Activist Investors Cast Wider NetBy and
Third Point moves on Nestle as Cevian holds Ericsson, ABB
CEO Kaeser says short-term investing should be discouraged
By his own admission, Siemens AG Chief Executive Officer Joe Kaeser is working to keep activist investors at bay.
As a host of prominent European manufacturers -- with historic roots in countries like the Netherlands, Sweden and Switzerland -- face a surge of shareholders demanding change, the head of the region’s biggest engineering company says he’s growing increasingly wary of striking the right balance between financial results and building for the future.
“You need to keep the difference between the short-term aspect and the long-term aspect very close,” Kaeser said in a Bloomberg TV interview to be aired next month. “The wider it gets, the more activists you get in saying ‘Hey, this is a performance gap and I want this now.”’
Activist investors have moved increasingly into Europe and beyond. Dan Loeb’s hedge fund, Third Point, announced Sunday it had amassed a $3.5 billion stake in Vevey, Switzerland-based Nestle SA. Sweden’s Cevian Capital AB counts Siemens rival ABB Ltd. as well as Ericsson AB as its targets, while Dutch paintmaker Akzo Nobel NV endured a bruising battle with hedge fund Elliott Management Corp. over ownership. General Electric Co. has had to contend with the demands of activist investor Trian Fund Management LP, which put pressure on the company to improve performance.
Siemens, conversely, has so far escaped being a target. Kaeser, a company veteran who joined in 1980 as a business studies graduate, has spent his four years as CEO simplifying the byzantine structure of the conglomerate that makes goods ranging from power turbines, health scanners, ovens and factory equipment. That’s helped the stock price, which has risen 49 percent since he took the top job.
The firm Chancellor Angela Merkel once called a “flagship of the German economy” has been under a continuous state of flux over the decades. Once the purveyor of choice for state-controlled behemoths like utilities and phone companies, Siemens has scaled back its operations significantly over the years, jettisoning everything from mobile phones to hearing aids to a majority of its lighting business, Osram Licht AG.
In his time at the helm, Kaeser has also spearheaded an effort aimed at bringing the company into the digital age. Siemens has spent billions bolstering its software business, with the acquisition of CD-adapco in 2016 for almost $1 billion, and the $4.5 billion buy of Mentor Graphics Corp. that closed in March. Kaeser is now laying plans to carve out the health-care division called Healthineers.
The CEO has talked about the company adopting more of a holding-like structure that gives autonomy to units, while still being centrally managed. Unions are resisting the move, but with the separation of health care, the manufacturer could effectively be taking steps in that direction.
Activist shareholders often push companies to sell businesses. In its tussle with Cevian, ABB has resisted pressure to carve out its power grids business. Trian was initially drawn to GE in 2015 by the dramatic portfolio transformation underway as CEO Jeffrey Immelt tilted the manufacturer toward heavy equipment while selling most lending and consumer units. While Trian never called for a breakup, the firm has put pressure on Immelt, who plans to step down this year, to improve performance and cut costs. Loeb’s Third Point is urging Honeywell International Inc. to spin off its aerospace unit, and in the case of Nestle, is encouraging the food giant to sell its stake in cosmetics maker L’Oreal SA.
For Kaeser, who spoke before Third Point unveiled its position in Nestle, the changes at Siemens are important, along with creating an “ownership culture” under which employees buy shares and get a stake in the company’s future.
New forms of short-term investing “are being invented in America, then they come over” to Europe, he said in the wide-ranging interview, adding that taxes on capital gains are one way to discourage the practice.
“What I would do is say ‘Look, if you want this, fine. Do your short-term thing. If you make a lot of money with that, you get taxed higher,’” he said. “You cannot build long-termism, stakeholders, societal inclusiveness, into that purpose of ownership. So there’s got to be some sort of counter, some sort of balance to that.”
— With assistance by Rick Clough