Siemens’ $18bn energy spin-off falls in Frankfurt debut

Shares in Siemens Energy opened lower than expected on their first day of trading on the Frankfurt stock exchange, as Germany's biggest-ever spin-off gears up for a challenging future independent from parent Siemens.

Shares in Siemens Energy – which makes gas turbines, power transmission systems and holds a 67 per cent stake in Siemens Gamesa – opened at €22.01 apiece on Monday, giving the company a market value of €16 billion.

A source had previously said estimates were for a market valuation of between €21 billion and €22 billion.

Shares eventually closed at €21.21, down 3.6 per cent from the first price, after trading in a range of €19.21-€22.98 euros during the session. This puts Siemens Energy’s market capitalisation at €15.4 billion.

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"I have repeatedly pointed out that we expect volatility to be high in the first few weeks," Siemens chief financial officer Ralf Thomas told Reuters. "It's not a situation specific to Siemens Energy, it's the same with every spin-off."

Siemens Energy is Germany's largest spin-off, even surpassing Lanxess and Covestro, which were both spun off from Bayer.

For Siemens investors, the deal has paid off: They have received one Siemens Energy share for every two shares they own in the former parent. Yet Siemens shares traded only 1.7 per cent below Friday’s closing price, a tiny discount given a substantial part of the conglomerate has been spun out in a separate listing.

Mr Thomas said it would take until at least mid-October to get a first idea of how Siemens Energy, which competes with General Electric and Mitsubishi Heavy Industries, will be valued.

Weak profit margins

Spun off from Siemens due to weak profit margins, the unit is expecting an adjusted margin of not more than 1 per cent in 2020 on earnings before interest, tax and amortisation before special items, due to the coronavirus crisis and weaknesses in its onshore wind turbine business.

That should rise to between 6.5 and 8.5 per cent in 2023, helped by more than €1.3 billion of cost cuts that a source said will include the shutdown of some of the group’s production plants.

Siemens Energy expects sales to fall by as much as €1.4 billion to €27.4 billion this year, before growing again in a range of 2-12 per cent in 2021.

"We are now doing everything in our power to seize the opportunities offered by the global energy transformation," Siemens Energy CEO Christian Bruch said.

Siemens has initially spun off 55 per cent of Siemens Energy to shareholders but plans to reduce its remaining direct stake of 35.1 per cent significantly within 12-18 months of the listing. The Siemens pension fund owns 9.9 percent Siemens Energy.

Mr Thomas said the company wanted to preserve a right to influence key decisions at Siemens Energy at least over the next five years, adding a stake of anywhere between 20 and 28 per cent could achieve this. – Reuters