Siemens Can Reach Dresser-Rand With Record Bid: Real M&A
By Brooke Sutherland and Jennifer Surane August 08, 2014
Siemens AG (SIE) may have to offer a record price tag to finally get the oilfield equipment maker it’s been coveting for three years.
Dresser-Rand Group Inc. ( DRC:US) has hired Morgan Stanley after potential suitors expressed interest in an acquisition, according to people familiar with the matter. Siemens, which has evaluated Dresser-Rand as a takeover candidate since at least 2011, may be willing to pay more than $80 a share to add the $4.8 billion company’s dominant position in compressors as it seeks to expand in the energy industry, said Gabelli & Co.
“Siemens and Dresser-Rand are natural partners, particularly as Siemens pushes down this strategic path to build out an oil and gas offering,” Justin Bergner, a Rye, New York-based analyst at Gabelli, said in a phone interview. “Siemens has the most compelling business case and therefore a reason to pay the most.”
A bid at that $80-a-share price would value Dresser-Rand ( DRC:US) at almost 18 times its profit in the last year, surpassing the previous record multiple that General Electric Co. paid for Lufkin Industries Inc. in 2013. Dresser-Rand is worth the expense, according to William Blair & Co., which says buyers will be drawn to the Houston-based company’s promising new subsea technology and steady cash flow from maintenance services. Swiss pumpmaker Sulzer has also weighed making an offer, people familiar with the matter said.
Cash Pile After bowing out of the bidding for Alstom SA’s gas turbine business earlier this year, Siemens is armed with “huge” firepower for deals, Chief Executive Officer Joe Kaeser said in an interview last month. One preferred use for the conglomerate’s $12.5 billion cash stockpile -- which is poised to swell even more after the sale of two health-care units -- is energy acquisitions in the U.S.
Production in the country has soared as the combination of horizontal drilling and hydraulic fracturing, or fracking, unlocked supplies trapped in shale-rock formations. Siemens wants to take better advantage of that boom, Kaeser said.
“Our products are good, but our installed base is not that great,” he said in the interview. “If you’re not in the installed base it’s hard to get it in, because no one takes stuff out and puts your stuff in, there’s just too much at risk.”
Dresser-Rand would give Kaeser the largest system of compressors in America and complement Siemens’ pending $1.3 billion purchase of Rolls-Royce Holdings Plc’s energy aero-derivative gas turbine and compressor business, said Bergner of Gabelli, a unit of Gamco Investors Inc.
Worth It He estimated Siemens could bid more than $80 a share for the company, a 27 percent premium to yesterday’s close ( DRC:US). That would value Dresser-Rand at 17.6 times its earnings before interest, taxes, depreciation and amortization in the last year, a record for similar-sized oilfield equipment deals, according to data compiled by Bloomberg. GE paid about 16.6 times Ebitda for Lufkin last year.
“They’re worth the premium,” Chase Jacobson, a New York-based analyst at William Blair, said in a phone interview. “Being part of a larger company would open up new opportunities where it could be more price-competitive. It just gives them better negotiating power.”
Sulzer could also be a logical buyer, Bergner of Gabelli said. The company, which will get almost $1 billion in proceeds from the sale of a coatings unit, is seeking acquisitions in rotating equipment such as pumps and compressors, said CEO Klaus Stahlmann.
Cash Preference While Dresser-Rand would fit what Sulzer is looking for, Siemens has more cash and shareholders would probably prefer a sale to the German conglomerate, said one of the people familiar with the matter, who asked not to be named because the information is private.
Getting Dresser-Rand’s management to agree to a deal won’t be easy. CEO Vincent Volpe Jr. isn’t interested in a sale and is seeking defense advice from Morgan Stanley, one of the people said. In the past, Volpe’s high price expectations have been the biggest obstacle to a takeover, other people said.
Valued at 14.4 times Ebitda ( DRC:US), Dresser-Rand is already trading at a premium to the median multiple paid in oilfield equipment industry deals, according to data compiled by Bloomberg. The company may want as much as $90 a share in a takeover, which could be too much for potential buyers, said Daniel Leben, an analyst at Robert W. Baird & Co.
“The question is, can you find someone that’s willing to pay a significant takeout premium and the multiple it would require?” Leben said. “We just haven’t seen any transactions like that.”
For Siemens, it may be worth it to finally get a hold of Dresser-Rand. After losing Alstom to GE, it’s in a position to make a move.
A deal “makes a lot of strategic sense,” Bergner of Gabelli said. Siemens “clearly had a set of money that was prepared to be put to work in a major acquisition.”
To contact the reporters on this story: Brooke Sutherland in New York at bsutherland7@bloomberg.net; Jennifer Surane in New York at jsurane4@bloomberg.net
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