SIEMENS GENERATING A SOLUTION – INTERNATIONAL

Siemens AG is a fossil fuel based business that has been struggling for years in the wake of a shift of core markets to renewable energy and competition in wind and solar power generation systems.

General Electric, the U.S. power competitor, was hit with the same shift which also contributed to their declining fortunes in recent years.  Siemens believes that their company has found one solution.  The company plans to combine the struggling power and gas unit and renewable energy businesses and spin off the new company to shareholders.  This action is intended to streamline the conglomerate and boost profit (ref WSJ).  Siemens says that the new company will have 80,000 employees and 34 billion in annual revenue.  There are plans to list a majority of Siemens Power and Gas (to which Siemens Gamesa Renewable Energy will be added) in Fall, 2020 and issue shares of the company to existing Siemens shareholders.  The company will remain an anchor shareholder in the new company, but will lower its share to a minority holding of between 25-49%.  It is expected that the valuation of the new company “will be a lot higher than the sum of the parts today,” according to Siemens CFO Ralf Thomas.  In the last full business year, Siemens Power & Gas reported a 76% decline in profit.  Siemens CEO Joe Kaeser reports that formation of the new company “will create a powerful pure play in the energy and electricity sector with a unique, integrated setup – an enterprise that encompasses the entire scope of the energy market like no other company.”  This is the latest action taken by Kaeser to boost profit by focusing on the group’s faster-growing and higher-margin businesses.  The decision to shed one of the company’s oldest businesses is an interesting study in what large conglomerates can do to rejuvenate when their businesses have gone stale.  Kaeser indicates that the changes will leave Siemens with a core business centered on new digital technology businesses that focus on connecting factories and urban infrastructures to the internet.  In the process of moving from an older business model to a newer one, the company also plans to cut costs by 2.2 billion by 2023.  As it enters into the building of its digital businesses, Kaeser has said that the company will make substantial investments in electric mobility, smart building and networks, as well as energy storage.  And, it also expects to create about 20,500 new jobs in these areas, partially offset by the 10,500 jobs that will be cut in other areas.

ALL THE MOVING PARTS MUST WORK TOGETHER TO ENSURE A SUCCESSFUL COMPANY.

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