JANUARY 25, 2007
Europe
By Jack Ewing
Whiplash for Siemens Investors
The company must pay a $550 million fine related to price-fixing charges, but it can boast a 51% jump in fourth-quarter operating profit
It was enough to give a shareholder whiplash. First, on the eve of the Siemens (SI) annual meeting on Jan. 25, came news that European Union regulators are imposing a $550 million fine on the company related to price-fixing charges in the power transmission industry. Bad news, especially coming after months of negative headlines related to an investigation by Munich prosecutors into bribery allegations at Siemens' communications equipment unit.
But then came good news. The company announced that operating profit in the fourth quarter rose 51%, to $2.1 billion, on sales of $25 billion. Siemens also said it will spin off its VDO auto electronics unit in an initial public offering, and announced the $3.5 billion acquisition of Plano (Tex.)-based industrial software maker UGS. Even though the EU fine will wipe out much of the quarterly profit gain, Siemens shares surged 6%.
Siemens, with a wide variety of interests in industries such as power generation and medical equipment, has never been a simple company to follow. Lately it has become difficult to tell whether it's a company deep in crisis or a company finally shaking off years of mediocre profitability. Germany's Frankfurt Allgemeine newspaper, generally a pro-business publication, took the former view, with a front-page editorial headlined "Nightmare Siemens." The article went on to catalog a year marked not only by the bribery scandal but also the insolvency of Siemens' former mobile-phone unit after it was taken over by Taiwan's BenQ.
A Lasting Change? As Chief Executive Officer Klaus Kleinfeld took the podium before some 12,000 shareholders at a Munich stadium, he made an attempt to win back public favor. Addressing former Siemens employees put out of work by the BenQ insolvency, Kleinfeld said, "I am deeply sorry that you and your families have had to go through so much in recent months." He pointed out that, despite well-publicized layoffs at the handset unit as well as other Siemens divisions, the company actually hired more people in Germany than it fired in 2006.
The stock market seems to already have forgiven Kleinfeld. The VDO spin-off and the acquisition of UGS show that the Siemens CEO is willing to make aggressive adjustments to the company's portfolio, which is exactly what fund managers have long urged. JP Morgan (JPM) was among banks upgrading the company shares on Jan. 25—a sign investors are starting to believe that, despite the public controversy, Kleinfeld's transformation of Siemens could be for real.
[an error occurred while processing this directive]
