Siemens Solar Purchase Flops as CEO Loescher Gets Timing Wrong

AppId is over the quota
AppId is over the quota
October 24, 2011, 7:24 PM EDT By Richard Weiss

Oct. 25 (Bloomberg) -- Siemens AG Chief Executive Officer Peter Loescher is finding that the single largest acquisition he made in the past four years may turn out to be one too many.

Loescher paid $418 million for Solel Solar Systems in 2009 to expand into solar thermal power. The asset has floundered as governments in sun-rich countries curtailed spending on infrastructure, and lower prices for solar panels make Solel’s technology harder to market. Profitability at the renewable energy division has fallen by half since early 2009.

“The acquisition was awkwardly timed,” said Michael Hagmann, an analyst at Nomura International Ltd. in London, who expects 250 million euros in expenses for the solar and hydro power unit when Munich-based Siemens reports earnings Nov. 10. “In the short term, Siemens definitely paid too much.” He advises investors buy Siemens shares.

Loescher had sought to duplicate the success of wind turbines and help edge sales from sustainable and renewable sources toward 40 billion euros ($55 billion). Siemens has been largely absent from dealmaking under Loescher, as he focused on overcoming a bribery scandal and tightening the portfolio around health care, energy and industrial gear, contributing to an $18.87 billion cash pile that is among the largest in Europe.

Austerity Programs

Siemens’s solar foray was followed by austerity programs in countries such as Greece, Italy and Spain that are suitable for the technology, as governments fight sprawling national debt. Israel-based Solel contributed a loss of 53 million euros for the fiscal year ended Sept 30, 2010, and Loescher said in May that losses exceeded revenue.

Solel makes solar-thermal power plants that use curved mirrors, focusing sunlight that heats liquids in receivers to power steam turbines generating electricity. The technology differs from photovoltaic plants using solar-cell panels that generate electricity directly from the sun and are mass-produced with the help of government subsidies.

“The solar thermal industry is still in a manufacturing phase, with a lot of human labor involved,” said Oliver Drebing of Srh Alsterresearch AG. Siemens may write off the entire goodwill on Solel as the business developed “completely different than Siemens had hoped for,” he said.

Siemens had previously been successful turning a small purchase into a major division. The company bought Bonus Energy AS in Denmark in 2004 to create a wind-power unit, beefing up a business with 750 workers at the takeover to ten times the size today. Siemens is now market leader in off-shore wind turbines.

Unlucky Hand

Loescher, 54, hasn’t had a lucky hand with corporate deals since joining in 2007. Three weeks into his new job, Siemens announced the purchase of Dade Behring Holdings Inc. for about $7 billion to expand the medical diagnostics business. Investors decried the transaction as too expensive, and Siemens wrote down the value by 1.15 billion euros three years later.

The Dade debacle and the bribery scandal that had swept out his predecessor contributed to Loescher refraining from major takeovers. The only other major transaction besides Solel was the purchase of a larger stake in Siemens’s publicly listed Indian unit for almost 1 billion euros at the beginning of 2011.

Selling assets hasn’t gone smoothly, either. Siemens failed to sell its hearing-aid unit in 2009 because potential buyers balked at the price. Last month, Loescher put plans on hold for an initial public offering of the Osram lighting division because of unfavorable market conditions. And Siemens had to inject another 500 million euros into the network venture with Nokia Oyj after finding no buyer for a stake.

‘Very High’

Siemens generated sales of about 150 million euros in its photovoltaic and solar thermal power businesses for the fiscal year through Sept 30, 2010. The units have been separated from wind energy since Oct. 1 and are bundled in a new division for solar and hydro power, Siemens’ smallest by revenue. The company has yet to name a leader for the subsidiary.

Solar thermal power plants may supply 11 percent of global electricity by 2050 and may be on par with conventional power at peak times by the end of the decade, the International Energy Agency estimates. Siemens predicted in 2009 that the market would swell to more than 20 billion euros by 2020. Buying Solel was Loescher’s attempt to play into that growth.

“The price paid was very high and this was clearly a strategic deal with a long-term view,” said Gael de-Bray, an analyst at Societe Generale in Paris. He said Siemens may write down part of the goodwill on Solel, without providing a figure.

‘Difficult Times’

Siemens has taken a more muted approach lately to the solar thermal industry . Michael Suess, the head of Siemens’s entire energy portfolio, told journalists last month that photovoltaic power may become a bigger market than solar thermal, which he said has failed to meet expectations. Siemens entered photovoltaic production in June with the purchase of a stake in Semprius Inc., a U.S. maker of solar modules.

“Solar thermal is definitely headed for some difficult times,” said Heinz Steffen, an analyst at Fairesearch GmbH in Kronberg, Germany.

Siemens’s struggles to make solar thermal commercially viable mirror its setbacks in the field of advanced cancer treatment, where its particle therapy has cost the company more than $1 billion. Still, the company has continued to push ahead with the solar thermal technology. In July, Siemens said it will start its first solar thermal plant since taking over Solel, in a field near Seville, Spain. It has since received orders for three additional fields in Spain.

Renewable Rivals

Loescher has vowed to turn Siemens into a 100-billion-euro company by sales. Siemens last year lifted a goal for revenue from solar equipment, wind turbines and other products to save energy to 40 billion euros by 2014 as it jostles with General Electric Co. for market share in environmental products. GE is spending $10 billion on green technology by 2015 and expects $21 billion of sales from related energy products in 2011.

Any writedown at the solar division is unlikely to materially hurt Siemens’s finances. The company may post net income from continuing operations of 6.81 billion euros for the fiscal year ended Sept. 30, on revenue of 73.15 billion euros, analysts surveyed by Bloomberg predict.

Other companies have thrown in the towel on solar thermal technology. German power plant developer Solar Millennium AG on Oct. 6 gave up its entire concentrated solar power activities in the U.S., blaming utilities preferring photovoltaics. With the jury still out which application will ultimately prevail, Siemens board member Suess said the company needs more stamina.

“We’re still in a stage where you have a lot of different technology bets to make, and you have to stay in to know who is winning,” Suess said.

--With assistance from Rachel Layne in Boston. Editors: Benedikt Kammel, Sara Marley

To contact the reporter on this story: Richard Weiss in Frankfurt at rweiss5@bloomberg.net

To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net

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