Why Siemens’ Plan To Sell Two Units To Parent Has Left Investors Unhappy
Siemens sells mobility, mechanical drives divisions to parent as part of global rejig.
Engineering giant Siemens Ltd. decision to sell its transport solutions and power equipment businesses to its German parent hasn’t gone down well with investors.
The stock fell nearly 5.8 percent after the company announced the sale on Wednesday after market hours. The sale stems from a global pact between Siemens AG and Alstom SA to combine Siemens’ mobility business, including rail traction drives, with the French rival. A committee will be set up to determine the consideration, terms and conditions for the proposed transaction, the company said in its statement.
Siemens India could get Rs 4,600 crore if the benchmark valuations of the last sale of Siemens’ healthcare business are taken, Abhishek Puri, an analyst at Deutsche Bank, wrote in a note. If the management decides to pay 50 percent special dividend like last time, that would more than compensate for the loss of Rs 2.4 earnings per share that businesses contributed as of September quarter earnings, he said.
The sale was not unexpected but the pace of the proposed divestment has been quicker than expected, HSBC said in a note. Listed multinationals in India trade at a premium to domestic peers on expectations of better corporate governance, superior technology and in anticipation of a potential buyout of minority stakes, HSBC’s Puneet Gulati wrote. “We believe repeated actions to sell attractive businesses to the parent is not good news for minority investors.”
The two businesses contributed about 15 percent to its sales in the year ended September, according to exchange filings. The mobility division houses businesses like propulsion systems, inverters, rail signalling, rail electrification, rail automation, intelligent traffic management, light rail, metro rail and passenger coaches. The mechanical division comprises integrated drive systems and mechanical drives.
Repeated Sales
This is not the first time that Siemens India has sold divisions to the parent. There have been 33 such transactions in the last 18 years.
Both Deutsche Bank and HSBC said the sale of businesses in the high-growth areas of railways modernisation, signalling and electrification is surprising. Rail business is the strongest growth sub-sector within the Indian capital goods industry, the said.
Twelve out of the 23 analysts surveyed by Bloomberg have a ‘Sell’ rating on the stock with nine ‘Buys’, and four ‘Holds’. Analysts await clarity on the valuations of the proposed sale before making any changes to their recommendations.