Siemens is good at engineering. That is apparent in its mechanism to unlock shareholder value, as well as the machinery produced by the German industrial giant. The main lever is a spin-off of a majority stake in Siemens Energy. Shares in the power generation and transmission division will begin trading on Monday with a target valuation of up to €20bn.
Spin-offs are an increasingly popular way to raise the value of Europe’s lumbering and unfashionable conglomerates. Siemens Energy promises to do the same, though lacklustre demand for its products will kill some of the buzz in the near term.
Outgoing Siemens chief executive Joe Kaeser is no stranger to financial tinkering. Previous projects include a hugely successful stake sale and separate listing for Siemens Healthineers.
Siemens shareholders will get 55 per cent of Siemens Energy. The parent will maintain a 35 per cent holding, which it aims to reduce to a quarter within five years. In addition to power and gas assets, Siemens Energy will hold a 67 per cent stake in Spanish-listed renewables subsidiary Siemens Gamesa, currently worth €9.9bn.
Bundling the Siemens Gamesa stake with the gas and power business greatly improves the allure to investors. The latter could be worth €9bn, according to Berenberg, which applied a 10 times multiple to two-year forward earnings and assumed a recovery in demand for gas turbines. Profit before tax at the division was under half 2017 levels last year. A cost-cutting and restructuring plan aims to revive margins
The spin-off would leave Mr Kaeser’s successor, Roland Busch, to wrestle with Siemens’ remaining conglomerate discount. The group’s largest and most profitable division, Digital Industries, looks undervalued. Industrial automation rival Rockwell of the US trades at about 20 times earnings. On the same multiple, Digital Industries is worth €60bn, roughly two-thirds Siemens’ current market value.
How can Mr Busch close the gap while avoiding a full break-up? An old axiom applies to such apparent paradoxes: there is always an engineering solution.
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