Siemens AG agreed to buy Dresser- Rand Group Inc. for $7.6 billion including debt as Europe’s largest engineering company expands its business with oil-and- gas equipment in the U.S.
Siemens will pay $83 a share in cash, the Munich-based company said in a statement today. That’s a premium of about 37 percent to Dresser-Rand’s share price in July before reports about a potential bid boosted the stock.
Siemens 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.
“The valuation is a stretch but strategically it makes sense,” said Volker Stoll, a Stuttgart-based analyst at Landesbank Baden-Wuerttemberg, who has a hold rating on the stock. “With the deal, the energy business will be strengthened, especially in the U.S. where Siemens hasn’t been as strong.”
Sulzer, which last week said it was in non-exclusive talks with Dresser-Rand, today said it terminated the negotiations to focus on other M&A opportunities.
While Siemens said it expects to close the transaction by summer 2015, there is leeway for potential competing offers to be placed as the takeover must still be approved by Dresser-Rand shareholders.
General Electric Co. has also been in talks with Dresser- Rand and is weighing whether to make an offer, the Financial Times reported on Sept. 19., citing unidentified people with knowledge of the matter. GE’s representatives couldn’t immediately be reached for comment.
“This is a transaction that should create value for clients, as well as for both sets of shareholders, that would not have been achieved had Dresser-Rand not become part of the Siemens group,” Vincent Volpe Jr., Dresser-Rand’s chief executive officer, said in the joint statement.
As Kaeser is overhauling Siemens, he also agreed to sell its 50 percent stake in the BSH Bosch und Siemens Hausgeraete GmbH joint venture to Robert Bosch GmbH for 3 billion euros ($3.85 billion), the company said today in a separate statement. Siemens and Bosch will each receive from BSH an additional distribution of 250 million euros before the transaction is completed.
Siemens dropped 0.4 percent to 96 euros in Frankfurt trading as of 11:00 a.m., valuing the company at 84 billion euros. Sulzer fell to 124.30 Swiss francs, a decline of 4.5 percent that gave it a market value of about 4.3 billion francs ($4.5 billion).
The agreement with Dresser-Rand allows Siemens to prevail against its former chief executive officer 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.
“Dresser-Rand is a perfect fit for the Siemens portfolio,” Kaeser said in the statement.
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 GE 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 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.
Baker Boots LLP provided antitrust advice to Dresser-Rand. Wachtell Lipton Rosen & Katz and Gibson Dunn & Crutcher also provided legal advice to Dresser Rand. Latham & Watkins acted as Siemens' legal counsel.
--With assistance from James Paton in Sydney and Simon Thiel in London.