NEW YORK (The Deal) -- Germany's Siemens has agreed an all-cash deal for Dresser-Rand (DRC) that values the oil field equipment maker at $7.6 billion including debt and ends merger talks between the Houston-based target and Switzerland's Sulzer.
Siemens said Monday it will offer $83 per share for Dresser-Rand, a 4% premium to the target's Friday closing price of $79.91. Dresser-Rand shares have climbed just over 37% in the past two months on reports of interest from Siemens, General Electric (GE) , and after Sulzer announced its approach last week.
Siemens will balance some of the payment for Dresser-Rand with the sale of its 50% stake in joint venture BSH Bosch und Siemens Hausgeraete. The Munich-based company on Monday said it will sell the stake to its partner Robert Bosch GmbH for 3 billion euros ($3.85 billion).
Dresser-Rand makes compressors and turbines used by drilling companies. Its acquisition would provide Siemens with about $3 billion of annual sales, predominantly in the fast-growing North American oil and gas market in which the German company has struggled to make headway.
"Dresser-Rand will become 'the oil and gas' company within Siemens," Siemens President and CEO Joe Kaeser said in a statement. "The combined activities will create a world-class provider for the growing oil and gas markets."
Siemens offer values Dresser Rand's equity at $6.36 billion, about 37% higher than its closing price of $60.42 on July 16, the day before reports first emerged that the company was considering bids.
The offer is at the top end of some analyst expectations. Tudor, Pickering, Holt & Co. Securities Inc. last week tipped bids of about $80 per share for Dresser-Rand, a price that would have valued the target at about 12 times next year's estimated earnings, according to the broker.
Despite the hefty bid Siemens may not have done enough to end interest from potential rival General Electric.
"I do not think that this is over," said Volker Stoll, an analyst at Stuttgart, Germany based Landesbank Baden-Wurttemberg. "My understanding is that Dresser-Rand were hoping for something between $80 and $90 and I feel that GE might still step in."
Siemens probably could not afford to increase its offer significantly beyond $83 and would likely walk away if GE topped the current bid, according to Stoll.
GE has held talks with Dresser-Rand, according to a Sept. 19 report by the Financial Times. GE spokeswoman Rebecca Edwards declined to comment on GE's intentions.
Fairfield, Conn.-based GE has proven its willingness to take on Siemens. In June, it paid 11.4 billion euros for the turbines and energy units of France's Alstom, following a months-long battle with Siemens and Mitsubishi Heavy Industries.
Dresser-Rand has been actively courting offers and earlier this year tapped Morgan Stanley to prepare the company for a sale.
"After a thorough and competitive process, we are pleased to have reached this agreement with Siemens," Dresser-Rand President and CEO Vincent R. Volpe Jr. said in a statement. "Dresser-Rand shareholders will receive immediate and certain all-cash consideration for their shares at an attractive premium to the company's unaffected share price."
Siemens said that it expected the deal to deliver about 150 million euros of annual savings and revenue benefits by 2019. A successful bid for Dresser-Rand would be the largest deal struck by Siemens' President and CEO Kaeser since he took over the top job at the German engineering giant in August 2013.
Sulzer said on Monday that it had ended talks with Dresser-Rand following the Siemens bid. "Sulzer has terminated the discussions with Dresser-Rand," said spokeswoman Verena Golkel. "We have several M&A projects in the pipeline and [will] focus on these projects as well as evaluating further opportunities."
Siemens said it expects the deal for Dresser-Rand to close in the summer of 2015. The German bidder will hope that the closing date is earlier rather than later in the summer as it has agreed to pay an additional 55 cents per Dresser-Rand share for each month after March 1 that the deal hasn't closed.
Dresser-Rand took financial advice from Morgan Stanley's Dennis Cornell, Rob Kindler, Jonathan Cox, Michael Harris, Brad Chandler and Jean-Baptiste Charlet and Zaoui & Co.'s Michael Zaoui and Yoel Zaoui. It tapped a Wachtell, Lipton, Rosen & Katz team led by Daniel Neff and Greg Ostling, and Gibson, Dunn & Crutcher LLP's Beau Stark, Dennis Friedman, and Jonathan Whalen for legal advice.
Latham & Watkins LLP's Adel Aslani-Far and Eli G. Hunt provided Siemens' legal advice.
--David Marcus and Claire Poole contributed to this report.