BERLIN (The Deal) -- Germany's Siemens (SI) has agreed to buy 985 million pounds ($1.7 billion) worth of power-generation assets from London-based Rolls-Royce Holdings plc and plans to spin out its hearing-aid division as recently arrived CEO Joe Kaeser implements his vision for the massive Munich engineering company.
Siemens said it would pay 785 million pounds in cash for Rolls-Royce's gas turbine and compressor activities. The German company would then also spend 200 million pounds to gain access to some of Rolls-Royce's turbine technology development for 25 years.
The deal and the hearing-aid spinoff were among a raft of measures announced on Tuesday and Wednesday aimed at overhauling the corporate structure of former CEO Peter Loescher, whom Kaeser replaced in August and who repeatedly failed to meet profit targets. Siemens has been besieged by lackluster earnings and legal scandals, which led to the promotion of Kaeser, 56, a 34-year Siemens veteran, to the helm.
Other restructuring measures include the carve-out of Siemens' healthcare activities into a standalone unit, a metals joint venture with Mitsubishi Heavy Industries Ltd. and the sale of its airport logistics unit.The medical unit brought in 13.6 billion euros ($18.9 billion) in revenue last year and analysts suggest the carve-out may be a precursor to a listing or outright sale to allow Siemens to focus on power generation. "This means that regional organization structures can be tailored to the requirements of the healthcare market and do not have to conform to the company's organizational matrix," the company said. Siemens will fold its steel and iron milling activities into a joint venture 51% owned by Mitsubishi Heavy. The venture will be based in the U.K and have 9,000 employees. The company said the venture is a reaction to weak metals prices and a shift in the focus of the steel and iron industry to Asia. Mitsubishi Heavy will contribute its Mitsubishi-Hitachi Metals Machinery Inc. venture, which it controls. Hitachi Ltd. and IHI Corp.also have stakes in the Mitsubishi-Hitachi venture. And, in the airport logistics sale, a consortium lead by investor Wilbur Ross will take the business. The reorganization also includes cutting 16 divisions to just nine and pulling support positions such as human resources and communications into the headquarters. Previously the activities were handled by each division. The streamlining should save Siemens an additional 1 billion euros per year, it said. Siemens, which makes everything from kitchen appliances to nuclear powerplants and high-speed trains, is also hoping to buy parts of its once-arch rival Alstom SA, the French engineering company. Siemens is believed to be preparing a $17 billion offer for parts of Alstom's power generation division and may trade some of its own train assets to upstage an offer from General Electric Co. Siemens discussed the reorganization as well as its earnings for the fiscal second quarter at its sprawling Siemensstadt Berlin campus, which defines an entire district of Germany's capital. The company said profit from continuing operations rose 21% to 1.6 billion euros in the quarter ended March 31 even though revenue fell 1.9% to 17.5 billion euros. Siemens warned that the year ending Sept. 30 would remain "challenging."