Siemens to Buy Rolls-Royce Energy Business

By Dow Jones Business News, 
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Siemens AG said it would buy large parts of Rolls-Royce PLC's energy business in a move that strengthens the German industrial company's power-generation and transmission business.

Siemens, which has been struggling to boost profit, said it would also enhance efficiency by eliminating one level of management.

The engineering conglomerate appointed Lisa Davis, a manager at Royal Dutch Shell PLC, to its management board, effective Aug. 1. She will lead the group's energy-related businesses and be based in the U.S.

A public listing of Siemens's hearing-aid unit is another part of Chief Executive Joe Kaeser's new strategy for Siemens, which offers products ranging from wind turbines to X-ray scanners.

Nine divisions will replace Siemens' four sectors, with health care being added an additional unit. The group expects to increase productivity by some EUR1 billion, or roughly $1.5 billion, thanks to the moves, fully effective by the end of fiscal 2016.

Siemens on Tuesday agreed to pay Rolls-Royce GBP785 million ($1.32 billion) for its unit that makes power-generation turbines, plus GBP200 million as part of a 25-year development-services agreement. The move was expected following reports last week.

The changes are elements of a strategy that Mr. Kaeser has drawn up since he rose to the top of the company in August, after his predecessor Peter Loescher repeatedly missed profit targets.

Siemens separately plans to bid up to EUR11 billion for the energy-equipment business of French rival Alstom SA and is proposing an asset swap to unload its train-making operation.

The acquisition of the Rolls-Royce unit further boosts Siemens' energy business, which already dominates the German companyu's portfolio. The energy division generated 38% of group revenue last year, with the power-grid unit adding a further 2%.

Rolls-Royce last year generated about GBP1 billion in underlying sales from its energy unit. The businesses being sold to Siemens contributed GBP871 million in revenue and GBP72 million in underlying profit.

"This agreement will give the energy business greater opportunities as part of a much larger energy company and allows Rolls-Royce to concentrate on the areas of business where we can add most value," Rolls-Royce CEO John Rishton said.

The sale comes after Mr. Rishton determined the power-generation business lacked scale to be globally competitive. The British company has struggled to lift profit at the energy unit, which delivered a 2.5% return on sales last year.

Write to Friedrich Geiger at friedrich.geiger@wsj.com and Robert Wall at robert.wall@wj.com

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