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Siemens Health IPO Takes Shape -- WSJ

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11/29/2017 | 08:48am CEST

As company slims down, its board is expected to firm up plans for major division

By William Boston 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (November 29, 2017).

BERLIN -- Siemens AG, the German engineering conglomerate, is readying the most significant step yet in its yearslong restructuring: the listing of a big chunk of its health-care business, estimated to be worth up to $47 billion.

The company's board is expected Wednesday to hammer out more details for its plan -- first disclosed last year -- to float a minority stake in the unit, which makes medical equipment and provides services for hospitals and diagnostics laboratories. It competes with similar, large units at General Electric Co. and Koninklijke Philips NV of the Netherlands.

A decision on where to list the health division could come as soon as Wednesday. The company is leaning toward Frankfurt after initially favoring New York, according to people familiar with the matter.

Siemens isn't likely to set the exact size of the IPO yet but is targeting listing a slice of between 15% and 25%, according to one of these people. The company has said it wants to launch the offering by the middle of next year.

Such a partial listing could be worth anywhere between $6 billion and $12 billion, according to analysts' estimates, and would rank as one of Europe's biggest IPOs in years. It also would create a health-care giant that Siemens hopes will be able to more-nimbly navigate a major shift taking shape in medicine.

Hospitals and health-care providers are moving from their current heavy reliance on diagnostic tools like X-rays, CT scans and MRIs to a health-care system that leans more on digital imaging, genetics, apps and artificial intelligence for both diagnosis and treatment.

Few believe computers will replace doctors anytime soon, but they already can scan millions of images in seconds to help them identify specific illnesses and rule out others. Meanwhile, robots are increasingly playing a supporting role in surgery.

The IPO of the health-care business, now called Healthineers, is Chief Executive Joe Kaeser's first step in trying to expand the business over the next few years -- in part by strengthening its foothold in imaging equipment and investing in new areas that promise growth such as molecular diagnostics.

Siemens' health-care business has built a lead in the sort of high-end hardware that fill hospitals' imaging wings. More recently, it has pushed into smaller imaging systems that can be used during surgery or noninvasive treatment to provide doctors with additional information that was previously unavailable.

When the company outlined its health-care strategy in August, Michael Sen, a board member overseeing the Healthineers IPO, said Siemens was taking the division public "because it will give us the resources that we need for growth and acquisitions."

The health-care business is one of Siemens' most profitable divisions. In the year ended Sept. 30, Healthineers reported EUR2.5 billion ($2.97 billion) pretax profit on revenue of EUR13.8 billion, a profit margin of 18.1%, up from 17.2% the previous year. Overall, Healthineers accounted for 17% of Siemens' revenue and 30% of the company's earnings.

Mr. Kaeser has been trying to rein in the sprawling conglomerate since he took charge of the company four years ago, shedding underperforming units such as telecommunications and household appliances and focusing on a narrower field of more-profitable businesses.

Those steps accelerated broader efforts begun in the 1990s to modernize and streamline Siemens' portfolio. For years, the company was effectively Europe's answer to GE, making power plants, electricity grids, washing machines, lightbulbs, telecommunications networks, mobile phones, personal computers and trains. The two companies have competed fiercely for decades in a number of fields including power generation equipment and health care.

While Siemens had long been seen as lacking the efficiency of GE, Mr. Kaeser's restructuring has helped level the playing field in some investors' eyes.

"Siemens has no need to hide," said Christoph Niesel, a portfolio manager at Union Investment, one of Germany's largest investment funds and a Siemens shareholder.

Since Mr. Kaeser took control in July 2013, Siemens shares have underperformed the DAX index of German blue chips. However, Siemens shares have delivered total return in dollar terms of 53%, compared with -10% for GE, says Mr. Niesel.

GE wasn't immediately available to comment.

Mr. Kaeser has made several acquisitions including the gas turbine and compressor business of Rolls-Royce Holdings PLC and Dresser-Rand, the U.S. turbine maker. The $7.6 billion purchase of Dresser-Rand now looks poorly timed. Earlier this month, Siemens said it would cut 6,900 jobs in its power and gas division amid falling demand.

But he has sold off far more assets, including a major stake in its railway business to Alstom SA, its stake in telecoms equipment maker Nokia Siemens Networks, and its share of a joint venture with auto supplier Valeo. Siemens also listed its Osram lighting group in 2013.

--Olaf Ridder in Frankfurt contributed to this article.

Write to William Boston at william.boston@wsj.com

Stocks mentioned in the article
ChangeLast1st jan.
DAX -1.07% 11589.21 Delayed Quote.-10.09%
GENERAL ELECTRIC COMPANY 1.56% 12.38 Delayed Quote.-29.40%
SIEMENS -0.88% 101.36 Delayed Quote.-13.47%
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Financials (€)
Sales 2018 83 201 M
EBIT 2018 7 175 M
Net income 2018 5 897 M
Debt 2018 19 073 M
Yield 2018 3,70%
P/E ratio 2018 14,20
P/E ratio 2019 14,02
EV / Sales 2018 1,27x
EV / Sales 2019 1,21x
Capitalization 86 921 M
Duration : Period :
Siemens Technical Analysis Chart | MarketScreener
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Technical analysis trends SIEMENS
Short TermMid-TermLong Term
Income Statement Evolution
Mean consensus OUTPERFORM
Number of Analysts 26
Average target price 129 €
Spread / Average Target 26%
EPS Revisions
Josef Kaeser President & Chief Executive Officer
Jim Hagemann Snabe Chairman-Supervisory Board
Roland Emil Busch Chief Operating Officer
Ralf Peter Thomas Chief Financial Officer
Helmuth Ludwig Chief Information Officer
Sector and Competitors
1st jan.Capitalization (M$)
SIEMENS-13.47%99 929
3M COMPANY-15.48%119 041