Siemens to buy Rolls-Royce energy business

• 10 years ago (2014-05-07)
• Junior Isles

North America 1021

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German industrial giant Siemens AG announced that it will buy large parts of Rolls-Royce PLC’s energy business in a move aimed at strengthening the German company’s power generation and transmission business.

Siemens will pay Rolls-Royce £785 million ($1.32 billion) for its unit that makes power generation turbines, plus £200 million as part of a 25-year development-services agreement.

In an effort to boost profit, Siemens said it would also enhance efficiency by eliminating one level of management. The company appointed Lisa Davis, a manager at Royal Dutch Shell PLC, to its management board, effective August 1st. She will lead the group’s energy-related businesses and be based in the US.

A reorganisation will see nine divisions replace Siemens’ four sectors. The group expects to increase productivity by some €1 billion ($1.5 billion) due to the moves, which will be fully effective by the end of fiscal 2016.

It is hoped that the acquisition of the Rolls-Royce unit will further boost Siemens’ energy business, which generated 38 per cent of group revenue last year, with the power transmission unit adding a further two per cent.

Last year Rolls-Royce generated about £1 billion in underlying sales from its energy unit. The businesses being sold to Siemens contributed £871 million in revenue and £72 million in underlying profit.

Meanwhile, Siemens plans to bid up to €11 billion for the energy-equipment business of French rival Alstom SA and is proposing an asset swap to unload its train-making operation. The proposal is a counter-bid to a $13 billion offer proposed by GE for Alstom.