It’s not been a great year for the Frankfurt stock exchange and its owner, Deutsche Börse. First, the European Union blocked the company’s attempt to merge with the London Stock Exchange and then German prosecutors accused the firm’s CEO of insider trading, forcing his resignation.
But on Wednesday the Frankfurt exchange received a jolt of good news: Siemens announced that it had decided to float its healthcare unit, Healthineers, in Frankfurt rather than in New York, as it had been considering. It’s a huge boost for Frankfurt as the IPO is likely to involve about a quarter of the unit’s shares and be worth upwards of €10 billion ($12 billion), the largest in Europe in decades.
“Frankfurt is one of the world’s largest trading centers for securities, and its importance will continue to increase due to Brexit,” said Michael Sen, CEO of the Siemens Healthineers business. “The public listing will give Siemens Healthineers entrepreneurial flexibility and access to the capital market. The goal is to grow sustainably and profitably while actively shaping the paradigm shift in the healthcare industry.”
“An IPO in the US carries more risks than benefits.”
The listing, which will take place in the first half of 2018, will likely be so large that it qualifies the company to join the DAX 30 index. Siemens is being advised on the IPO by Deutsche Bank, Goldman Sachs and JPMorgan Chase.
Company officials told Handelsblatt that the firm had considered listing in New York because the price-earnings multiples for Siemens’ main healthcare rivals, General Electric and Philips, were much higher in their New York stock exchange listings than for comparable healthcare firms listed in Europe. But CEO Joe Kaeser and CFO Ralf Thomas concluded that this gap was closing.
Another factor that tilted the company toward Frankfurt was pressure from union leaders, who were concerned that a company listed in New York would sacrifice Germany’s vaunted policy of co-determination, in which union leaders sit on the company’s board and participate in major decisions.
“An IPO in the US carries more risks than benefits,” said Jürgen Wechsler, the district head of the powerful IG Metall union in Munich. “Siemens Healthineers has reached its current leading position in the global market for medical technology thanks to German co-determination. You should not risk this for a few dollars more.”
Mr. Kaeser also needs union acquiescence for a restructuring plan in other parts of the company, notably the loss-making power generating and wind divisions. He has announced plans for 6,900 job cuts, which have prompted union members to launch daily demonstrations in Berlin and elsewhere.
Healthineers makes most of its money through sales of big-ticket medical equipment such as X-ray and magnetic resonance imaging technology. To keep up with the latest technological trends, it needs capital to invest in the flourish medical startup industry which is growing rapidly on both sides of the Atlantic. Small firms often can get new products through development much faster than slow moving corporations.
Healthineers is the second most successful division of Siemens after its digital factory, with sales this year up 3 percent to €14.2 billion, and an 18.1 percent profit margin.
Axel Höpner is head of Handelsblatt’s Munich office and Charles Wallace is an editor for Handelsblatt Global in New York. To contact the authors: email@example.com or C.Wallace@extern.handelsblatt.com.