(FROM THE WALL STREET JOURNAL 1/26/15)
By Christopher Alessi
At Siemens AG's annual general meeting in Munich on Tuesday,
shareholders likely will grill Chief Executive Joe Kaeser over the
price he agreed in September to pay for U.S. oil equipment maker
Dresser-Rand Group Inc.
Since Siemens announced the deal, valued at $7.6 billion
including debt, many investors and analysts have argued Mr. Kaeser
overpaid. The deal values Dresser at roughly 58 times the past
year's per-share earnings. Rival U.S. oil-service companies FMC
Technologies Inc. and Dril-Quip Inc. trade at less than 16 times
earnings.
Since oil's slide began in late spring, prices per barrel have
fallen about 55%, to below $50. Share prices across the oil
industry have slumped but Dresser's stock has hovered above $80
since the deal was announced.
"We just see the drop in the oil price, and we have to talk
about it," said Ingo Speich, a portfolio manager at German
investment manager Union Investment GmbH who plans to deliver a
speech at the meeting. Mr. Speich said he was satisfied with the
acquisition from a strategic perspective, but "the timing was
pretty bad" and "it was expensive."
Mr. Kaeser, who acknowledged in September the price was "on the
high side," has strongly defended the purchase. Last month, he
predicted oil prices would again top $85 before the integration of
Dresser is complete. The deal is set to close this summer.
The transaction drew attention in mid-September, when oil prices
were still relatively high, because it involved a competing bid
from Sulzer Ltd., a Swiss pump maker chaired by former Siemens
Chief Executive Peter Loscher. Siemens ousted Mr. Loscher in July
2013 and Mr. Kaeser, who was then chief financial officer,
succeeded him.
Some investors have speculated Mr. Loscher only courted Dresser
out of spite, to drive up the price for Siemens. But a Dresser-Rand
filing with the U.S. Securities and Exchange Commission from
October details a long pursuit by both suitors that lifted the
offering price and culminated in Siemens's $83-a-share offer. The
three-year courtship hasn't previously been reported.
In September 2011, Siemens -- then headed by Mr. Loscher --
began negotiations with Dresser about an all-cash acquisition of
the Houston firm, according to the filing. Two months later,
Siemens tabled an offer of $66 a share. By March 2012, Siemens's
offer had reached $74 a share. Talks continued fruitlessly through
that December, when Dresser Chief Executive Vincent R. Volpe Jr.
terminated them, according to the filing.
In September 2013, Mr. Volpe began talks with an unidentified
"Company A" and its largest shareholder, also unidentified, about
"becoming a significant stockholder" of Dresser. The talks fizzled
in late 2013, according to Dresser's filing.
"Company A" is Sulzer and the unnamed shareholder is Renova
Management AG, the holding company of Russian oligarch Viktor
Vekselberg, which owns 32% of Sulzer, according to a person
familiar with the negotiations.
In February 2014, Mr. Loscher was appointed chief executive of
Renova and chairman of Sulzer's board.
The Dresser filing says that late last June "the newly elected
chairman of the board of directors of Company A" contacted Mr.
Volpe for a meeting.
Mr. Loscher "tried to understand why the negotiations fell
apart" between Sulzer and Dresser before he arrived, the person
familiar with the negotiations said. "It was a perfect fit," the
person said of a Sulzer-Dresser tie-up.
Talks between Mr. Loscher and Mr. Volpe were complicated last
July when a German magazine reported that Siemens had been working
for months on a new bid for Dresser. Dresser's stock quickly jumped
12%, to $68.
The SEC filing says Dresser and Siemens "did not have any
discussions with each other regarding any potential transactions
during this time." But near the end of July, Siemens approached
Dresser, the filing says. Dresser at the time was still negotiating
with "Company A" over a "merger of equals," the filing adds.
In early September, Mr. Kaeser -- by that point running Siemens
for over a year -- suggested to Dresser's Mr. Volpe an offer of
between $73 a share and $80 a share, according to the filing.
Dresser countered that it needed an offer in the $80s.
On Sept. 16, Mr. Kaeser made a firm offer of $83 a share.
Dresser's board scheduled a meeting for Sept. 21 to review final
offers from Sulzer and Siemens.
A day later, Sulzer for the first time disclosed it was talking
with Dresser about a potential deal. According to the SEC document,
Sulzer was responding to a media inquiry. Two days later, Sulzer
parent Renova disclosed it held a 4.99% stake in Dresser.
The apparent leak fueled market speculation that Sulzer had only
recently entered the fray to undermine Siemens.
Throughout the weekend of Sept. 20, both companies continued
talks with Dresser. On Sept. 21, according to the filing, Dresser's
board concluded that Siemens's all-cash offer "represented superior
value" compared with "Company A's" offer of a merger-of-equals,
which would have given Dresser a 51.5% stake in the combined
company.
Two months later, oil prices nose-dived.
Access Investor Kit for Siemens AG
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=DE0007236101
Access Investor Kit for Dresser-Rand Group, Inc.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US2616081038
Access Investor Kit for Siemens AG
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US8261975010
Subscribe to WSJ: http://online.wsj.com?mod=djnwires