Siemens splurges $7.6 billion on Dresser-Rand in U.S. shale market bet

Mon Sep 22, 2014 4:07pm EDT
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By Georgina Prodhan and Ludwig Burger

FRANKFURT (Reuters) - Germany's Siemens AG (SIEGn.DE: Quote) has agreed to buy U.S. oilfield equipment maker Dresser-Rand Group Inc DRC.N for $7.6 billion in cash, paying a relatively rich price to belatedly beef up its presence in the U.S. shale oil and gas industry.

The acquisition, which ranks among the biggest in the history of the industrial group, will strengthen Siemens' position in the United States, its weakest region, and bring it nearer catching up with rival General Electric Co (GE.N: Quote).

Siemens' oil and gas revenue will increase to around $11 billion, including the acquisition of Rolls-Royce Holdings Plc's (RR.L: Quote) energy gas turbine and compressor business, announced in May, from less than $7 billion before the two deals.

Analysts saw the deal - which coincided with another major German buy in the United States, Merck KGaA's (MRCG.DE: Quote) agreed purchase of Sigma-Aldrich Corp SIAL.O, as strategic, but said the price looked high.

It gave Dresser-Rand an enterprise value of about 16 times earnings before interest, tax, depreciation and amortization (EBITDA), about twice that of its peers.

"Siemens has largely missed out on the U.S. oil & gas ... boom over the past years," JPMorgan capital goods analyst Andreas Willi wrote in a note on Monday. "Siemens' increase in exposure comes potentially late in the cycle and value creation from this deal may have to depend very much on execution."

GE has spent $14 billion on acquisitions in the oil and gas field since 2007 and has built up a business there worth about $17 billion.

Siemens shares closed down 0.4 percent at 95.97 euros, broadly in line with European blue-chip stocks as a whole .FTEU3.   Continued...

The Siemens logo is seen during the IFA Electronics show in Berlin September 4, 2014.  REUTERS/Hannibal Hanschke