Gadfly

Siemens Launches a Thousand Ships

Kaeser's armada of companies will help keep the activists at bay.
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Unless you happen to be called Amazon.com Inc. or Alphabet Inc., being a conglomerate is a sure-fire way to attract an activist investor with a message to break up the company.

True, corporate boards often pay silly prices for disparate businesses and are too slow to discard those that don’t perform. There’s also the risk that the pearls in a huge portfolio aren’t valued as highly as standalone peers: the famed conglomerate discount.

Still, there's a danger of something getting lost in Wall Street’s new fondness for tightly-focused companies. It’s not for nothing that Berkshire Hathaway Inc., Samsung Electronics Co Ltd., General Electric Co. and the Walt Disney Co. are among the world’s most valuable companies. At the very least, being CEO of a company that size helps open doors.

Happily, Siemens AG has alighted on a model that reconciles Wall Street’s quite understandable desire to realize full value from invested capital with the economic cycle-smoothing advantages that come from being a diversified big fish.

On Thursday the German conglomerate confirmed an IPO of its healthcare division in the first half of 2018.

Healthineers (yes the name is awful, there's even a rightly-mocked Healthineers song) has been the company’s most profitable unit and a separate listing makes sense. Healthcare companies tend to attract much higher stock market multiples than companies that make high-speed trains, as Siemens does. The business might be valued at 30-40 billion euros ($35.5 billion-$47 billion), according to Bloomberg Intelligence.

The IPO will let the division raise capital. That cash will help it pursue growth-enhancing deals in a fast-changing healthcare technology sector. The new shares could make a decent acquisition currency too. By extension, Siemens’s automation businesses won’t have to compete for capital.

Yet Siemens will retain a majority stake in Healthineers. That's become something of a habit. Siemens still owns 60 percent of the newly merged (and listed) Siemens-Gamesa Renewable Energy SA, a wind power specialist.

These multiple market listings may help the German parent eradicate any lingering conglomerate discount. Though, arguably, that's already happened. The stock hit a record high in April. 

And Siemens isn’t breaking itself up, nor is it about to become a thinly-staffed holding company a la Berkshire Hathaway. Instead, chief executive Joe Kaeser speaks of the company as a “fleet of ships”, as opposed to a lumbering “tanker”.

Siemens isn’t the only one doing this. Last year, RWE AG listed a minority stake in its renewable energy division Innogy. That raised capital and crystallized value for RWE shareholders that was hidden by investor worries about legacy coal and nuclear power activities. Steelmaker ThyssenKrupp AG is said to be considering similar for its capital goods businesses.

It’s not a perfect model. When things go wrong at standalone divisions, there’s nowhere to hide. Disappointing sales at Siemens-Gamesa caused the shares to tumble 17 percent last week. Still, executives looking to sharpen operational focus and keep activists at bay might want to give a spin to Kaeser’s armada formation.

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

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