He who arrives late has to dig deeper into his pockets.
That’s the situation at Siemens, the German engineering conglomerate that largely slept through the U.S. shale oil and gas boom. The company’s takeover of Dresser-Rand, the Houston-based oil equipment maker for shale mining firms, is certainly no bargain at €6 billion ($7.6 billion).
From a strategic point of view, the purchase is a step in the right direction. Without acquisitions in promising new sectors, Siemens’ Chief Executive Joe Kaeser will not be able to get a grip on the company’s growth problems.
But Siemens must learn from this experience. It must spot important opportunities – in this case, the booming business of removing natural gas from shale – sooner. It’s no good waiting to jump on the bandwagon when returns have already reached dizzying heights. Otherwise high write-offs are certain when the boom cools down.
In the case of Dresser-Rand, Siemens had an opportunity to make the acquisition earlier. The company – which provides fracking equipment and services – was on its radar years ago. When the company’s stock price fell under $50 for a time, Siemens could have made a serious offer. But then-Chief Executive Peter Löscher hesitated.
The premium demanded by the owners at the time seemed high in view of the low stock price. And Mr. Löscher had proclaimed Siemens to be a “green infrastructure giant.” Solar- and wind-energy were a better fit for its green image than the dirty oil and gas business. Ultimately, Mr. Löscher bet on the wrong horse. His move into solar heat turned out to be quite expensive for the company.
Mr. Kaesar is more pragmatic. Despite all the prophecies of doom, oil and gas will keep flowing for a long time. Among other things, Siemens can offer automated technology products in the area. With the acquisition of Dresser-Rand, the firm has guaranteed itself an established role in the business and access to customers, albeit for a hefty price of $83 a share.
The acquisition makes sense, but it will not guarantee that the Kaeser era will be a success. The company must identify more promising areas and go all in. Only then will Siemens once again be a dynamic enterprise which fulfills both employees and owners.
Axel Höpner is head of the Handelsblatt Munich office. Contact: email@example.com.
The acquisition makes sense, but it will not guarantee that the Kaeser era will be a success.