The U.S. oilfield equipment maker, Dresser-Rand Group Inc. (DRC, Financial), has been facing a number of bidders interested in acquiring the company in the past few months. Suzler (SUN, Financial), Siemens (SEIGY, Financial) and General Electric (GE, Financial) have all been involved in the bidding exercise with the intention to strengthen their exposure in the oil and gas industry. The acquisition would enhance their core capabilities, adding newer products and technologies from the acquired company. Let’s check out who finally won the deal and what benefits this acquisition would be bringing in for the acquirer. Here’s the overall story.
The bidding exercise
During mid-September, news sources confirmed that Siemens and General Electric were about to bid for the oilfield equipment maker that could derail the merger between Dresser-Rand and Swiss pump maker Suzler. It was heard that Germany’s Siemens had plans to offer more than $6.1 billion, or $80 per share, for the U.S. compressor and turbine maker.
A merger with Suzler was expected to combine Dresser-Rand’s compressors and turbines with Suzler’s industrial pumps, giving the enlarged group a bigger footprint at a time when a North American drilling boom is boosting demand for energy services and equipment. But the sudden bid placement by Siemens and another similar bid expected from General Electric has put Suzler’s merger plans almost fall apart.
The final bid
A Reuters report just confirmed that Germany’s Siemens AG has agreed to buy Dresser-Rand for $7.6 billion in cash, paying a relatively higher price to improve its presence in the U.S. shale oil and gas industry.
This acquisition would be the largest in the history of any industrial group and will strengthen Siemens' position in the United States, the company’s weakest region and make it more competent with its closest rival, General Electric.
Suzler has declared that it has closed all talks with Dresser-Rand after Seimens placed its counterbid and has almost won the offer.
How will it impact Siemens’ future?
Through this acquisition, the company’s oil and gas revenue would increase to around $11 billion, including the recent acquisition of Rolls-Royce Holdings Plc.’s (RRI, Financial) gas turbine and compressor business line declared in May this year. Even analysts’ have commented that though the offer price is at the higher range, this deal seems to be absolutely strategic from Siemens’ viewpoint.
J.P. Morgan (JPM, Financial) capital goods analyst put the acquisition in his words – “Siemens has largely missed out on the U.S. oil & gas ... boom over the past years, Siemens' increase in exposure comes potentially late in the cycle and value creation from this deal may have to depend very much on execution.”
This deal is an important one for Siemens which has lost in the bidding war for the energy business of France’s Alstom (AOMFF, Financial) to GE in a $16.9 billion deal.
It is expected that, if this acquisition happens without any intervention by GE, Siemens’ investment would be paying off in the long term, and Dresser-Rand’s large client base could contribute to its profits from day one.
Siemens is currently facing headwinds in Europe where it makes most of its sales, as governments have eschewed shale gas exploration for environmental reasons, and conventional power providers are suffering from soft demand and economic policy upheaval. In such a prevalent scenario, Siemens has embarked on a corporate overhaul in May dubbed “Vision 2020” to boost its foundation against profitable competitors such as ABB Limited (ABB, Financial) and GE.
This acquisition is thus going to create a larger entity having a stronger base in the U.S. oil and gas exploration segment against the immediate rivals.
What is Dressser-Rand’s take
This deal would give the acquired company an enterprise value of almost 16 times earnings before interest, tax, depreciation and amortization, almost twice that of its peers. The offer given by Siemens was 32% above the company’s six month average share price.
On September 22, after the announcement of Siemens acquiring the company flew into the market, Dresser-Rand’s share prices immediately gained 2.62% to $82 a share.
Parting words
Dresser-Rand and Siemens both stand to benefit from this acquisition, and it is being hoped that GE will keep away from the picture. If GE pulls itself into the scene, then there will be a new set of changes which could need to be addressed. But as of now, with the news of Siemens acquiring Dresser-Rand, analysts are expecting that the former will see great days ahead in the oil exploration domain in the U.S. in the near future.
