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Siemens' $7.6 billion acquisition deal faces EU antitrust investigation
2020-04-18
Due to concerns that reduced competition might drive up prices, the European Commission's antitrust investigation agency announced an antitrust investigation into German industrial giant Siemens (XETRA:SIE) acquiring a US oilfield equipment company.
To boost Siemens' oil and gas business in North America, in September 2014, Siemens announced the acquisition of the US oilfield equipment company Dresser-Rand (NYSE:DRC) for $7.6 billion. At that time, oil prices were still high, ranging from $90 to $100 per barrel, and demand for energy equipment in North America was strong.
Siemens and Dresser-Rand provide turbine compressor units and engines for the oil and gas industry. On February 13, Bloomberg cited an email statement from the European Commission saying the deal could reduce the main competitors in the market from three to two, ultimately pushing prices higher. Regulators noted that General Electric Co. (NYSE:GE) is another major supplier of these products.
The EU currently has 90 working days for the investigation and is expected to make a final decision by June 19.
The Wall Street Journal analyzed that this acquisition aligns with Siemens CEO Joe Kaeser's goals. The leader, who has worked at Siemens for over 30 years, aims to establish a foothold in the US energy market and catch up with the US shale gas boom.
Siemens produces gas turbines and supplies equipment to companies extracting natural gas, while Dresser-Rand mainly manufactures compressors, turbines, and other rotating equipment. This acquisition can enhance Siemens' natural gas extraction capabilities, allowing it to benefit more directly from US shale gas hydraulic fracturing.
Robert Norfleet, an analyst at independent stock research firm Alembic Global, told The Wall Street Journal that Siemens' large supply chain network will enable it to leverage Dresser-Rand's profitable business with high revenue liquidity.
On January 27, Siemens released its global financial report for the first quarter of fiscal year 2015. Kaeser stated in the report that most divisions met expectations. However, the medical and energy businesses, once Siemens' most important assets, saw combined profits drop by 27%, causing Siemens' quarterly profit to fall 4.1% to 1.8 billion euros (approximately $2.055 billion).
At that time, Siemens announced a transaction price of $83 per common share, $3.09 higher than Dresser-Rand's closing price on the trading day before the acquisition decision was announced (September 19). The $7.6 billion represented 14.1 times Siemens' 2015 EBITDA. Moreover, current oil prices have dropped more than 40% from the $92 per barrel at the time of the announcement.
However, according to Bloomberg, Siemens stated in an email on February 13 that the acquisition is proceeding as scheduled and is expected to be completed by summer. Dresser-Rand also said in a statement that it plans to complete the merger on time.
Swiss industrial group Sulzer AG (SIX:SUN) and General Electric both had intentions to acquire Dresser-Rand.
On that day, Siemens' stock price rose 1.7%, closing at 95.96 euros per share, with a market value of 84.5 billion euros (approximately $96.482 billion). Dresser-Rand rose 0.4% intraday to $81.25 per share, with a market value of $6.2 billion.
18 Apr,2020
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