Mergers and acquisitions

: an Oil & Gas Equipment Sector case study Siemens' acquisition of Dresser-Rand

Abstract

In September 2014, the German engineering and manufacturing company Siemens announced the plan to acquire the American manufacturer of oil and gas equipment and service provider, Dresser-Rand for $83 a share. In a standalone valuation, Siemens can be valued between € 87 and €104 and tends to be undervalued. Contrarily, Dresser-Rand appears to be overvalued, since the current market price of $68 is at the upper valuation range of $36 to $88.1 Additional revenues and reduced costs, ex transaction and implementation costs are worth $141 to $458 million and may add synergies of $1.8 to $6 a share to the standalone value of Dresser-Rand. Despite the fact that Dresser-Rand fits into Siemens’ Power and Gas division from a strategic point of view and that the M&A sentiment is currently beneficial to tap into the M&A market, an acquisition price of $83 seems to be fairly high. Siemens should not realize the deal and offer a premium of 21% to the current market price. The thesis recommends an acquisition price range of $47 to $73.2 This case study shows that the world of M&A is fascinating, but also complex. Bid-prices and valuations often substantially diverge – depending on the strategic fit and potential synergies. The thesis mentions shareholder pressure, unsuccessful recent acquisition activities, legal & technological burden, high cash balances and personal interests as reasons for Siemens’ high premium.

Date of Award	2015
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	António Borges de Assunção (Supervisor)