“Joint demerger report” is above the document with 380 pages. That sounds like divorce and figuratively it is. But it is not about marriage, but one of the largest voluntary separations in German economic history. The industrial icon Siemens splits off its entire energy business – into an independent listed group. It is entitled Siemens Energy AG. Siemens will no longer hold the majority with 45 percent.
The name Siemens is a door opener for businesses around the world. In order to be allowed to bear this name, the new energy company even has to pay license fees. That is also in the documents that Siemens has now posted on the Internet.
The spin-off from Siemens Energy is a kind of final point in the restructuring of the traditional group initiated by CEO Joe Kaeser. Since the 62-year-old was named CEO almost seven years ago, he has been changing structures. He outsources, buys and sells. If Siemens used to be a large family with many business pillars that can support themselves in an emergency, Kaeser is now finally breaking this alliance.
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Separation from energy division – – – – –
The spin-off from Siemens Energy is the highlight in several ways. It’s a big divorce. It is a business with sales of EUR 28.8 billion in the past financial year, EUR 77 billion in orders on hand and 91,000 employees. A good third of Siemens’ previous sales will be booked in the new energy giant from the end of September. The traditional group with sales of 87 billion euros and 385,000 employees is shrinking.
In contrast to the spin-off of the medical technology division into the Siemens Healthineers group, the group also surrenders the majority in the energy division. the initially remaining share, specifically 45 percent at Siemens, is to be significantly reduced in the next twelve to 18 months. Kaeser has explained several times what drives him. Siemens should not be caught in a change in technology again, as was once the case with Internet telephony when Siemens was still relying on relays and earlier switching technology.
A “Siemens new” is to emerge in the shell of the traditional group. It is said to be prepared for upcoming technological changes: digital technology, the Internet of Things, artificial intelligence. The split report says literally: “This is how the company intends to further expand its leading position in the growth markets of automation, industrial digitization and intelligent infrastructure.”
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While the US company General Electric was previously the competitor of the Germans, it could be Jeff Bezos with Amazon and his cloud business in the future, feared Kaeser. Bezos has billions of dollars in the war chest and could easily buy into Siemens business areas. Kaeser’s plan is that he would rather dissolve the Siemens family of wellbeing and proactively remodel the company than an activist shareholder get in and smash it.
There will be three public companies on the stock exchange in the future – all with the name Siemens, one of them in the Dax-30. First, the shrunken Siemens AG with an industry focus. Secondly, the future split off energy business, under which the shares in the Spanish wind energy group Siemens Gamesa will also come. And third, the medical technology group Siemens Healthineers, which was listed on the stock exchange in spring 2018 and in which Siemens AG still holds 85 percent.
For Kaeser, Siemens Healthineers is proof that its smashing strategy makes sense. The sum of the individual parts is worth more than together under one roof. Siemens Healthineers is currently valued at EUR 14.5 billion in 2019 (September 30) sales at EUR 47 billion. Siemens AG with sales of 87 billion euros including energy and the Healthineers shares with almost 80 billion euros.
It will be exciting to see how the stock exchange will evaluate “Siemens new”. In any case, Kaeser wants to remove the risk of the energy business from Siemens AG. It was he himself who strengthened the energy division through the purchase of billions, such as the US company Dresser Rand. Years ago, however, there were no protests against companies that came under criticism for their involvement in the construction of coal-fired power plants.
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Moving away from globalization – – – – –
The truth is that the former earnings pearl of the energy business has now become a burden on Siemens’ returns. A loss was reported in the semi-annual report. Restructuring programs are still ongoing. The business with large power plants has collapsed.
Because this does not promise an independent history of the stock exchange, Kaeser chooses a spin-off variant that has already been used at Osram. There is no classic IPO in which Siemens would receive money, but rather a spin-off. Shareholders will receive a new Siemens Energy share for every two Siemens shares. The initial listing is scheduled for September 28th. As stated in the demerger report, there will be pressure on Siemens Energy shares. Investors, such as Dax 30 index funds, are likely to sell their shares. Everything is now being done to portray Siemens Energy as a uniquely interesting and future-oriented company in the growing energy supply market.
Without debts and with a lot of capital, it will be split off. No other group is positioned so broadly in the energy value chain. The future Siemens Energy boss and former Linde board member Christian Bruch can be quoted as saying that 850 million people still have no access to electricity. The demand is increasing and at the same time the CO2 emissions would have to be radically reduced. That was an opportunity.
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Great emphasis is placed on the modalities of the divorce. It is a right separation, because there is a “deprivation of control agreement”, according to which Siemens does not have a majority in the general meeting and may only have up to three members on the 20-member supervisory board. The first chairman of the supervisory board is said to be Joe Kaeser. Siemens CFO Ralf Thomas will also move in. In addition, ex-SPD chairman Sigmar Gabriel is said to sit on the control committee.
Gabriel is already a member of the supervisory board of Deutsche Bank. The shareholders still have to formally approve the spin-off from Siemens Energy. The first virtual shareholder meeting begins on July 9 at 10 a.m. The pandemic almost slowed down the drastic Siemens structural change. A special law now makes Internet general meetings possible. Business experts expect the approval of the shareholders. Joe Kaeser’s contract as CEO will expire in February 2021 at the latest. And this divorce from the energy business is not cheap either. There is talk of an average three-digit million amount.
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