Sulzer AG, the Swiss pumpmaker, is considering expanding its energy industry equipment business through a potential merger with Dresser-Rand Group Inc.
A merger would combine U.S.-based Dresser-Rand’s compressors and turbines with Sulzer’s industrial pumps to serve oil and gas customers, creating a company with $6.5 billion in sales. The transaction would give both companies a bigger footprint as demand for energy services expands amid a North American drilling boom in shale rock and other unconventional oil and gas development.
Sulzer “is engaged in non-exclusive discussions with Dresser-Rand regarding a potential transaction,” the Winterthur, Switzerland-based company said in a statement yesterday, without elaborating further. “There can be no assurance that a transaction will result from these discussions.”
Sulzer, whose largest shareholder is Viktor Vekselberg’s Renova Group, rose as much as 10 percent in Zurich trading today. Dresser-Rand yesterday surged 7.3 percent to a record $72.81 at the close in New York.
“Clearly a combined Dresser-Sulzer would be able to sell a larger suite of products to its oil and gas customers,” said Justin Bergner, an analyst at Gabelli & Co. in New York, who rates Dresser-Rand shares a buy and owns none. “It would begin to address one of the potential sources of competitive disadvantage on the side of Dresser.”
Dresser-Rand, which has the largest installed base of compressors serving the energy industry, has been seen by the industry as a takeover candidate for more than year. The compressors and turbines it manufactures are used to extract, move and process oil and gas.
Blaise Derrico, a spokesman for Dresser-Rand, declined to comment on merger and acquisition matters.
Of the two companies, Dresser Rand is the larger, with a market value of $5.58 billion. Sulzer’s market value is 4.31 billion Swiss francs ($4.58 billion).
The deal could lead to a lower tax rate, assuming the combined companies are based in Switzerland, Bergner said.
“Investors would be happy with an outcome that provides more stability, lower fixed costs and potentially a lower tax rate to a Dresser-Rand operation that has to a certain extent struggled with issues related to volatility of its order book and working capital management,” Bergner said.
Sulzer’s statement was in response to a report by Swiss newspaper Handelszeitung yesterday, which said the two companies could announce a merger as soon as next month. Dresser-Rand is working with Morgan Stanley to prepare for possible takeover bids from companies including Siemens AG, people with knowledge of the matter said in August.
Ukrainian-born billionaire Vekselberg is the second-richest man in Russia, according to the Bloomberg Billionaires Index. Renova Group owned a 33 percent stake in Sulzer as of July 3.