Siemens AG (SIE) is preparing a sale of its security products business as Europe’s biggest engineering company combs through its portfolio to weed out laggards.
The company hired investment bank Rothschild for a sale of the unit, which has fewer than 350 employees and offers products such as security cameras and access card readers, according to three people familiar with the matter who declined to be identified as the process isn’t public.
Roland Busch, the head of the infrastructure and cities division, said in an interview in Davos last week that its security products unit doesn’t have a “viable business case” as a stand-alone entity. He also said he’ll retain the low- and medium-voltage transmissions unit, countering speculation that it may be sold for as much as 1 billion euros ($1.3 billion).
Siemens Chief Executive Officer Peter Loescher, on his second five-year term, has come under pressure to boost profitability and refocus the Munich-based company after some deals that he supervised soured, and a push into more environmentally friendly energy generation led to spiraling costs. Busch’s sector, formed in 2011 to better serve municipal clients as a one-stop shop, last week posted the lowest profitability of the company’s four main sectors in the three months through December.
The Solna, Sweden-based security products unit is separate from the security solutions business. The former manufactures the products while the latter focusses on their implementation within more complex facility management systems.
“We are focusing on security solutions that are part of our building automation solution,” said Busch, whose sector is also selling building technology, smart grids, train manufacturing and rail automation equipment. “But doing a security system, per se, stand-alone, we just don’t have the products to make a viable business case.”
Siemens today dropped 0.3 percent to 81.55 euros in Frankfurt trading as of 3:52 p.m., valuing the company at 71.8 billion euros.
Siemens, which last week reported a decline in profits and rising costs for the three months through December, is already planning to offload units such as airport luggage systems, mail automation and water technology after shareholders approved the spinoff of the underperforming Osram lighting unit.
Siemens spokesman Philipp Encz declined to comment on potential further assets sales. A spokesman for Rothschild also declined to comment.
Societe Generale’s analysts said in a note to clients this month that Siemens’ low-voltage business could be an acquisition option for Legrand SA (LR), the world’s biggest maker of wiring devices and based in Limoges in central France. The low-voltage units of both companies would be “very complementary in terms of product, end-market and geographical coverage,” the bank said, adding that the Siemens unit could fetch as much as 1 billion euros.
Busch said that Siemens will keep the unit, adding that the company plans to increase the margin of that business continuously.
The infrastructure and cities sector can reach its earnings before interest, taxes, depreciation and amortization target of between 8 percent and 12 percent of sales “very quickly” when charges from underperforming rail projects are excluded, Busch said.
Charges for the delayed delivery of high-speed trains are the “basic reason why you didn’t see any progress in our margins,” he said. Such costs reached 116 million euros in the fiscal first quarter. “If you take that out of the equation, you can see our other divisions moving forward, making progress.”
Siemens’ profitability has trailed that at competitors General Electric Co. (GE:US) and ABB Ltd. (ABBN) for six consecutive quarters. Siemens rose 11 percent in 2012, while Germany’s benchmark DAX index gained 29 percent. General Electric increased 17 percent, while Swiss rival ABB added 6.1 percent
At 4.8 percent, the infrastructure and cities sector’s operating profitability in the three months through December was less than half that of the energy businesses at 10.8 percent, and the only one that did not meet its profitability targets.
To contact the reporters on this story: Aaron Kirchfeld in Davos, Switzerland at firstname.lastname@example.org; Alex Webb in Munich at email@example.com
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