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Advisor(s)
Abstract(s)
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.