Siemens CEO Preparing to Unveil New Strategy

By Dow Jones Business News, 
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By Friedrich Geiger and Jan Hromadko

BERLIN-- Siemens AG Chief Executive Joe Kaeser is set to announce his new strategy for the German industrial giant as soon as Tuesday, with the long-awaited shake-up getting fresh attention thanks to his bid for parts of French rival Alstom SA.

Mr. Kaeser, a 34-year Siemens veteran, took the top job in August pledging to get the company often dubbed " Europe's GE" back on track. His predecessor, Peter Löscher, repeatedly missed profit targets and trailed competitors' profitability in several business areas.

Mr. Kaeser, who had served as chief financial officer under Mr. Löscher, has spoken little about his plans. He is widely expected to cut a layer of management and may rebalance the company's focus among its divisions. His recent moves and rare comments indicate he aims to focus more on energy generation and transmission, said observers.

Announcing a review of the individual businesses in November, he hinted at his desired direction for Siemens by describing it as a company active "along the entire value chain of electrification" of industrial processes.

Siemens, which reports second-quarter results Wednesday, has been in talks for several months with Rolls-Royce Holdings PLC to buy the British turbine-maker's energy business, according to people familiar with the discussions. A deal could be announced this week along with the new strategy, one of these people said. The unit could fetch EUR1 billion, estimated Commerzbank analyst Ingo-Martin Schachel.

And in the biggest move showing Mr. Kaeser's interest in energy, he last week moved to nudge aside General Electric Co. of the U.S. in bidding for French industrial group Alstom's energy business. Siemens' proposal includes cash of up to EUR11 billion and an asset swap through which it would unload its struggling train business on the French company, which builds France's TGV trains.

Units with a strong retail focus or yield low profitability could face downsizing, investors said.

"The medical diagnostics and hearing aid businesses are rumored as disposal candidates," said Tim Albrecht, manager of the EUR4.4 billion ($6.1 billion) DWS Deutschland fund, which owns an about 0.4% stake in Siemens.

The proposed disposal of Siemens' train business to Alstom comes on top of existing plans to sell a related unit that produces equipment for airports and distribution companies. The unit was unprofitable last year and charges have repeatedly disappointed investors in recent years.

Striking deals with Rolls or Alstom would help Mr. Kaeser fill gaps in Siemens' energy business. Alstom, for example, is the world's leader in servicing power-generation equipment, with a global market share of around 25%. Few new power plants are now being built, so Siemens and its rivals are all focusing more on maintenance.

But observers aren't yet sold on the merits of energy. Acquiring Alstom's units might boost Siemens' earnings, noted JP Morgan analyst Andreas Willi last week. But the deal would also increase Siemens' exposure to struggling utilities, lifting energy as a proportion of Siemens revenue to roughly 43% from 31% now, Mr. Willi noted.

The power generation sector, particularly in Europe, has faced several difficult years. Subsidized renewable energies have created a capacity glut that has eroded wholesale power prices and depressed utilities' profits. Utilities across Europe have moved to cut resulting losses by mothballing thousands of megawatts in gas-power generation.

For Siemens, which has specialized in building the world's most efficient big gas turbines, this has translated into lower orders.

Buying Rolls-Royce's energy business, meanwhile, could help Siemens adjust to the new market conditions. Rolls- Royce's small gas-turbines are designed for use in Europe's emerging power-supply system of more decentralized generators.

Aside from deals, Mr. Kaeser is expected to alter Siemens' structure, now divided in four sectors: energy, infrastructure and cities, industry and health care.

Mr. Löscher, the former CEO, created the structure soon after taking over in 2007, when bribery scandals shook the company. He hoped the new management level would tighten his grip on the group's operations and prevent new compliance violations, according to a person close to the Siemens supervisory board.

But the additional management level also inflated Siemens' costs and complexity, analysts said.

"This organization has arguably added to both complexity and cost," said Morgan Stanley in a research note, citing duplicated legal, accounting and human resources functions.

Mr. Albrecht, the fund manager, said he expected Mr. Kaeser to eliminate the four-division structure.

Write to Friedrich Geiger at friedrich.geiger@wsj.com and Jan Hromadko at jan.hromadko@wsj.com

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  05-05-141308ET
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This article appears in: Energy

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