European Union regulators green-lighted Siemens AG’s $7.6 billion acquisition of one of the largest suppliers of rotating equipment solutions to the oil and gas industry, Dresser-Rand. The deal was approved without conditions on Monday, following a four-month probe that concluded that the transaction would not harm competition in the bloc. Siemens will pay $83 per common share of Dresser-Rand, which currently has a $6.12 billion market cap.
Dresser-Rand’s business – together with Siemens’ compressor unit and the related service business – will form a new Dresser-Rand unit within Siemens Power and Gas Division with a primary focus on the O&G industry.
Joe Kaeser, president and CEO of Siemens
Dresser-Rand’s current CEO, Vincent Volpe will lead the business through the initial integration phase. Starting September 1, 2015, Christopher Rossi, 28-year veteran of Dresser-Rand, will take over the CEO position at the new business.
Siemens manager Heribert Stumpf will serve as the unit’s CFO. Siemens is anticipating annual synergies of about $224.9 million (€200 million) from the integration of Dresser-Rand by 2019.
Siemens will also take on $1.2 billion in Dresser Rand’s debt. It said Monday it will work to close the acquisition this week after the European Commission said the deal could proceed without the company having to divest assets or enact any other adjustments.
Based in Houston and Paris, Dresser-Rand has annual revenue of approximately $3 billion and employs roughly 8,100 people. The company will keep its name and, as noted above, become Siemens’ Houston-based O&G business.
Lisa Davis, member of the Managing Board of Siemens AG, commented Monday, “With Dresser-Rand on board, we now have a comprehensive portfolio of equipment and capability for the oil and gas industry and a much expanded installed base, allowing us to address the needs of the market with world-class products, solutions and services.”
Speaking to the transaction amid the low price environment, she added, “The current level of oil prices increases the focus of our customers for ways to reduce costs. So despite the challenges of a low oil price, this also brings opportunities as we focus our efforts on offers that reduce costs and increase efficiency. The long-term growth trajectory for oil and gas remains intact.”
The EU Probe
The EU regulators launched an investigation into the deal in February, seeking to discern whether it risked decreasing competition in the market for turbo compressors. Siemens and Dresser-Rand both released statements in February saying they anticipated the transaction to close this summer, if not earlier. Dresser-Rand added at the time that regulatory authorities in the US, Brazil, Canada, Russia, and South Korea had already approved the acquisition.
In February, Ricardo Cardoso, the European Commission’s Spokesperson for Competition, told Oilpro by phone that the probe is a normal procedure that begins when “serious concerns” related to competition arise. The European Commission had until 30 June 2015 to render a decision, he said.
Siemens and Dresser-Rand both supply turbo compressors as well as the engines which drive these compressors (“drivers”). The combination of a turbo compressor with a driver is called a turbo compressor train. For turbo compressor trains driven by aero-derivative gas turbines, the Commission had concerns that the transaction would reduce competition for both components, namely turbo compressors and drivers as well as for turbo compressor trains.
Both companies supply turbo compressors as well as drivers such as aero-derivative gas turbines, industrial gas turbines, steam turbines and electric motors. The customers for this equipment are mainly active throughout the oil and gas distribution chain. Specifically, in upstream exploration and production, midstream transportation, LNG and gas storage applications and downstream refinery processes, as well as in the distribution of oil and gas related products.
The Genesis Of The Deal
The $7.6 billion deal was first proposed last September. Siemens has been engaged in US expansion and last year announced plans to relocate its energy headquarters to the US to take advantage of soaring demand for oil and gas equipment in light of the US power industry’s transition from coal to natural gas.
In mid-2014, rumors that Dresser-Rand was being eyed as a potential takeover target began to surface. The company manufactures turbines, compressors, rotators and other equipment for the oil and gas industry. Approximately half of its sales are generated from lucrative aftermarket parts and services.
Siemens invested $1.3 billion in last year in its purchase of most of Rolls-Royce Holdings’ energy business, which also makes compressors and gas turbines.
In November, Dresser-Rand shareholders overwhelmingly approved Siemens takeover of the company (with the assumption of debt). In a special shareholder meeting, 98.9% of the votes cast favored the execution of the acquisition.
Dresser-Rand’s stockholders also approved at the time, on an advisory, non-binding basis, compensation that may become payable to named executive officers as a result of the merger.
Source: Industry News