By Daniel Michaels And Shayndi Raice
FRANKFURT--German companies are on a buying spree--and the U.S.
is their biggest target.
On Monday, pharmaceutical firm Merck KGaA said it would buy
Sigma Aldrich Corp., a life-sciences company based in St. Louis,
for $17 billion. A few hours earlier, German industrial giant
Siemens AG agreed to buy energy-equipment maker Dresser-Rand Group
Inc. for more than $6 billion.
The planned purchases are the latest in a flurry of U.S.-focused
acquisitions by companies from Europe's biggest economy. The forces
fueling the activity include record-low interest rates and
stagnation in Europe, economic growth and declining energy prices
in the U.S., and expanding cash hoards at thriving German
companies.
"German companies want to be where their customers are," said
Dietmar Rieg, president of the German American Chamber of Commerce
in New York.
The latest deals bring to almost $70 billion the total value of
German acquisitions announced in the U.S. so far this year,
according to Dealogic. That ranks second to $77 billion in proposed
takeovers by Canadian companies during a global M&A boom.
German firms have already spent more on U.S. investments so far
in 2014 than in every full year of the past two decades, according
to Dealogic.
Merck Chief Executive Karl-Ludwig Kley said Monday the Sigma
Aldrich takeover marks "a quantum leap" for his company, in part
because Merck has been "under-represented in the U.S." The
acquisition also would let Merck tap into "trends like increasing
globalization of research and pharmaceutical production."
Sigma Aldrich, which had sales of $2.7 billion last year, sells
chemicals and biological materials used in scientific labs.
Merck KGaA's pharmaceutical sales are dominated by just two
prescription drugs: Rebif for multiple sclerosis and cancer
treatment Erbitux. Merck KGaA is unrelated to Merck & Co.,
although they shared common roots a century ago.
For Siemens, the Dresser-Rand deal advances Chief Executive Joe
Kaeser's aim of building up the company's presence in the U.S.
energy market and capitalizing on the shale-gas boom. He said
Monday the acquisition would allow Siemens to be "seen and heard
and known in the greater Houston environment," Dresser's home base
and a center of the U.S. petroleum industry. Siemens has been
expanding its energy operations and shedding other assets.
The German buying push in the U.S. highlights a confluence of
economic trends. The biggest is macroeconomic: The U.S. economy is
expanding, and economists expect that growth to accelerate. Europe
has yet to rebound from recent financial crises, and now fears
about tensions with Russia over the conflict in Ukraine could slow
it further, analysts say.
Yoel Zaoui of London-based advisory firm Zaoui & Co., which
advised Dresser Rand on its deal with Siemens, said the spate of
deals shows how hot the U.S. market has become. "It's an open
capital-markets environment and a growing economy," he said.
In a stark illustration of the contrast between the U.S. and
Europe, the Federal Reserve is considering when to raise interest
rates in the U.S., while the European Central Bank is seeking ways
to cut record-low rates to stimulate growth. Germany's
export-focused producers, which have thrived over recent years, are
capitalizing on the situation.
"There's a friendly environment for M&A deals right now,
given the big companies' high cash positions and given low interest
rates," said Marco Gunther, an analyst at German bank Hamburger
Sparkasse.
German manufacturers have also targeted the U.S. because the
shale-gas boom is reducing American energy prices.
In Germany, meanwhile, energy prices are among the developed
world's highest, due to the multibillion-dollar price tag for the
government's decadeslong project to develop ecologically renewable
forms of energy.
Industrial icons such as Siemens and BASF SE, the world's
largest chemicals company, have said they plan to expand in the
U.S. and other countries outside Europe, rather than at home in
Germany, largely because of energy costs.
This week's deals fit in a broader push by German companies to
grab technologies and market share in the world's biggest
economy.
Last week, German auto-parts maker ZF Friedrichshafen AG agreed
to acquire U.S. rival TRW Automotive Holdings Corp. for about $12
billion, while German software producer SAP SE said it would buy
Concur Technologies Inc. of the U.S. for more than $8 billion. Both
deals would bring the buyers new capabilities in critical future
markets, such as self-driving cars and cloud computing.
"There is a little bit of a renaissance of focusing on U.S.
acquisition targets," said Christian Kames, the Frankfurt-based
head of German mergers and acquisitions at Citigroup Inc.
The spending splurge also shows a change of heart among German
managers, said Dirk Albersmeier, head of German mergers and
acquisitions at J.P. Morgan Chase & Co. in Frankfurt, which
advised Germany's Merck on its deal Monday.
Many German executives had been wary of doing big acquisitions
in the U.S. after past failures, he said.
With robust finances and strong positions in global markets, "it
was just a matter of time" before deals restarted, he said. "Now,
given the last couple of weeks, we have seen that people feel
comfortable."
German companies have made a splash in the U.S. before--and not
always successfully. When car maker Daimler-Benz AG in 1998
acquired Chrysler Corp. for $36 billion, then-CEO Juergen Schrempp
promised to create "the most profitable automotive company in the
world." But Chrysler struggled. In 2007, the German car maker sold
most of its stake to private-equity firm Cerberus in a deal that
brought Daimler AG almost no revenue.
Sports-equipment firm Adidas AG has posted three profit warnings
over the past year, partly because its Reebok division, bought for
$3.8 billion in 2005, has lost market share to rival Nike Inc.
Adidas is now working to reposition Reebok.
But other German investments have boomed. Media giant
Bertelsmann SE bought publisher Random House in 1998 for an
undisclosed sum. It last year formed a joint venture with Penguin
to create the world's largest book publishing group. Supermarket
chain Trader Joe's has thrived since German retailing chain Aldi
Nord acquired it in 1979.
The current series of deals also increases the likelihood other
transactions will follow, as companies rush to grab assets before
prices rise or rivals pounce. Rising stock prices both show and
reinforce investor confidence, investment bankers say. Year to
date, global M&A volume is $2.6 trillion, up 43% from the same
period last year, according to Dealogic, and the most since
2007.
"The market environment in terms of financing and shareholder
support continues to be positive," said Berthold Fuerst, the
Frankfurt-based head of M&A in Germany for Deutsche Bank AG,
which advised Siemens on its deal with Dresser Rand and ZF on its
deal with TRW. "The ingredients remain for a positive
environment."
Natalia Drozdiak and Sarah Sloat contributed to this
article.
Write to Daniel Michaels at daniel.michaels@wsj.com and Shayndi
Raice at shayndi.raice@wsj.com
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