Siemens Energy Unit Said to Face Cost Inflation, Hurting Value
(Bloomberg) -- Siemens AG plans to load its energy subsidiary with additional costs ahead of a planned separation, depressing the division’s valuation and resulting in a stand-off between senior executives at the German engineering giant, according to people familiar with the plan.
Should the move go ahead, Siemens would require the energy business to take on burdens including payments of about 300 million euros ($324 million) for the right to use the company name, said the people, who asked not to be identified because the discussions are private. In addition, some 200 million euros in costs would fall on the subsidiary for services like portfolio management, investor relations or communications that are now being absorbed by the parent, the people said.
While the transfer would take some weight off Siemens, it threatens to cut into the valuation of the energy unit, leaving it well short of 10 billion euros, one of the people said. Management board member Michael Sen, the chief executive officer-designate of the business, has clashed with CEO Joe Kaeser and Finance Chief Ralf Thomas because he wants to minimize any financial burden on the soon-to-be separated business, they said.
Spokespeople for Siemens declined to comment.
Should Kaeser and Thomas prevail, annual earnings before certain items would take a hit of about 500 million euros, half the amount some analysts estimated, the people said. Discussions are ongoing and no decision has been made regarding the allocation of costs, the people said.
Siemens has earmarked the unit for separation on the stock market scheduled for later this year. It’s likely to be the final act by Kaeser, who has whittled down the once sprawling engineering conglomerate to focus on fewer, less cost-intensive units. Kaeser, whose contract expires next year, has said he may be willing to lead the Munich-based company for longer should the transaction not run as smoothly as hoped.
Unlike at an initial public offering, in which outside investors determine the valuation of a company to be listed, the value in a spin-off is calculated by the company initiating the transaction.
The company started charging former divisions for the use of its brand last year, but Siemens Healthineers AG, which went its separate way in 2018 via an initial public offering, isn’t required to pay. A spokesman for that company said an agreement for the branding rights was reached before the IPO and still stands.
Siemens Energy is made up of a gas-and-power division that builds everything from large turbines to transmission equipment, as well as a stake in a wind turbine maker Siemens Gamesa Renewable Energy SA. Siemens recently acquired an 8% stake in Siemens Gamesa from Iberdrola SA, boosting its holding to 67% and strengthening its grip on the business.
The gas turbine part of the business has suffered from slowing demand caused by a global shift toward renewable energy, and Kaeser has cut about 8,700 jobs in response to the slump.
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