By Christopher Alessi
MUNICH--The U.S. "will remain the strongest and most attractive
economic region" for growth in the near future for Siemens, Chief
Executive Joe Kaeser said on Tuesday at the company's annual
shareholders meeting.
"The re-industrialization of the U.S. and the country's superior
energy policy offer growth opportunities," Mr. Kaeser said. The
"geopolitical stability" of the U.S. is an "important aspect in our
acquisition policy, " he added.
Mr. Kaeser also defended Siemens's planned $7.6 billion
acquisition of U.S. oil equipment maker Dresser-Rand Group Inc.,
announced in September, amid heavy questioning by investors over
the high price of the deal.
The deal, at $83 a share, values Dresser at roughly 58 times the
past year's earnings. Rival U.S. oil-services companies FMC
Technologies Inc. and Dril-Quip Inc. trade at less than 16 times
earnings.
"Because of the acquisition, you lost a lot of credit," Henning
Gebhardt, a portfolio manager at Deutsche Asset & Wealth
Management, known as DWS, a Siemens shareholder, said during a
speech at the meeting. "Why was the acquisition so strategically
important?" Mr. Gebhardt asked. Siemens wouldn't be able to cover
its capital allocation for the deal until at least 2020, he
said.
"As a former CFO, you should know how to do better than this,"
Ingo Speich, a portfolio manager at Union Investment GmbH, another
Siemens shareholder, said of the Dresser deal during a speech. Mr.
Speich accused Mr. Kaeser of getting drawn into a bidding war with
former Siemens chief executive Peter Löscher, who, as the chairman
of Swiss pump maker Sulzer Ltd., had also sought to do a deal with
Dresser.
Concerns over the pricey transaction have been amplified in
recent weeks as oil prices have plummeted to below $50 a
barrel.
Mr. Kaeser faced the grilling by shareholders after the company
reported results for the first quarter of fiscal year 2015 earlier
on Tuesday, posting a near 25% decline in net profit to EUR1.08
billion ($1.21 billion) for the period ended Dec. 31, hurt in part
by macroeconomic pressures.
Siemens reiterated that it expects to notch up 15% growth in
earnings per share in the year to end-September on unchanged
revenue.
An 11% decline in new orders to EUR18.01 billion underscored the
pressure Siemens is facing as customers placed fewer large orders
at its mobility, wind power and renewables business, as well as its
process industries and drives unit.
Profitability at Siemens's power and gas business, its biggest
by sales, came under particular pressure, hit by lower margins in
the large gas turbine and steam businesses, the company said.
Cutbacks in investment by European utilities and lower energy
prices have squeezed profitability in the sector. The division's
profit margin shrank to 11.3% from 18.2% in the same period last
year, Siemens said.
"No other business in the company has such a pronounced need for
action, " Mr. Kaeser said of the power and gas division. "This is
partly because we didn't adequately recognize the signs of the
times, such as rising price pressure and over capacities," he
added.
The division also faces questions over a management reshuffle.
On Monday, Siemens announced that the chief executive of the power
and gas division, Roland Fischer, would step down at the end of
this month. Management Board member Lisa Davis, who is responsible
for the company's energy operations out of Houston, will serve as
acting division head, the company said.
DWS's Mr. Gebhardt questioned Siemens's decision to centralize
control over all the company's energy operations, including power
generation, outside Germany. "Location makes a difference," he
said. "Lisa Davis has experience in oil and gas, but not that much
in power generation," Mr. Gebhardt added.
Ms. Davis, an American who joined Siemens from Royal Dutch Shell
PLC last year, will also be responsible for managing the
integration of Dresser once the deal closes this summer.
Investors have largely supported the Dresser acquisition from a
strategic perspective, allowing Siemens to take advantage of the
U.S. shale gas boom and leverage a new product portfolio in the oil
sector, but have criticized the high price and fretted over the
inopportune timing.
Mr. Kaeser said oil market volatility was "not structural,"
attributing oil's slide to "oversupply." He reiterated that the
acquisition of Dresser would allow Siemens to achieve synergies 30%
higher than forecast when the deal was first announced. In
September, Siemens said it expected to achieve EUR150 million in
annual synergies by 2019.
The deal is part of a larger effort by Mr. Kaeser to streamline
the company by shedding noncore businesses and focusing more on
energy operations. Last month, Siemens closed a deal to acquire
Rolls Royce Holdings PLC's civilian energy operations for $1.3
billion.
Write to Christopher Alessi at christopher.alessi@wsj.com
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