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Siemens could reap 2 bln euros from hearing aids divestment -sources
August 14, 2014 / 11:45 AM / 3 years ago

Siemens could reap 2 bln euros from hearing aids divestment -sources

* Attempted to sell hearing aids division in 2010

* Business has annual sales of 700 mln euros -sources

* Could follow listing model used for Osram unit

By Arno Schuetze

FRANKFURT, Aug 13 (Reuters) - German industrial group Siemens is renewing efforts to divest its hearing aids business in a deal that could be worth about 2 billion euros ($2.7 billion), sources familiar with the matter said.

Chief Executive Joe Kaeser is seeking to focus Germany’s second-biggest company by market value on its most promising businesses to close the gap on more profitable competitors such as Switzerland’s ABB and United States-based General Electric.

The German group, which makes products ranging from gas turbines to high-speed trains and industrial automation software, has sold or spun off a string of assets in recent years, including lighting business Osram, but failed to find a buyer for Siemens Audiology Solutions four years ago.

Kaeser announced last month that investment banks will soon be picked for a potential stock market listing for the hearing aids business.

Sources familiar with the business, the accounts of which Siemens does not publish separately, said that it has annual sales of about 700 million euros, with earnings before interest, tax, depreciation, and amortisation (EBITDA) of 160-170 million euros, and could be valued at about 2 billion euros in a potential deal.

UBS, which failed to find a private equity buyer for the business in 2010, will be vying for the new sales mandate alongside the likes of Goldman Sachs, Morgan Stanley and Deutsche Bank, the sources said.

One of the first tasks for any adviser will be to gauge investor appetite for a potential flotation of Siemens Audiology Solutions. If it turns out to be low, Siemens is likely to spin off the business, giving its shareholders stock of a separately listed company.

Siemens applied the same strategy with Osram, which has underperformed its parent since being spun off last year.

A sale of the hearing aids business to private equity investors or a peer also remains an option.

“But that’s a rather unlikely track. Any potential buyer could have bought it ever since it was put on the block in 2010,” one of the people familiar with the matter said. “Why should they bother now when prices are unlikely to be better?”

DANISH TIE-UP?

Siemens this year discussed a tie-up between the hearing aids business and Danish peer GN Resound but could not agree on terms, sources said.

“Of course we have discussed internally if a deal with Siemens would be possible, otherwise we would not have done our job as a professional company, but I can’t comment further on this,” Anders Boyer, finance chief at the Danish business’s parent GN Store Nord, said on Thursday.

Analysts at research and brokerage firm Bernstein suggest that Asian peers could join the fray.

“Another possibility could be a buyout by a company like Samsung, which could be particularly appealing, since Siemens has really oriented its business towards Asia in the past five-plus years,” they said in a note.

A possible stumbling block for potential buyers or investors in an initial public offering would be the business’s recent performance as Siemens focused on other operations. Its market share has decreased to 17 percent from 23 percent since 2005, the Bernstein analysts estimate.

One of the reasons for the failure of the 2010 sales attempt was that market leader Sonova had quietly bought up Siemens sales agents, denting its profitability and offer prices from private equity groups.

Siemens fought back by acquiring United States-based HearUSA and restructuring its audiology business. People familiar with the German group’s hearing aids business say that it is now on track to reap a similar valuation to listed peers, which trade at an average multiple of 12.5 times expected earnings.

In Germany, where Siemens started marketing hearing aids in 1913, the group currently benefits from a court ruling that lifted caps on health insurance payments, resulting in a steep rise in prices for hearing aids. ($1 = 0.7473 Euros) (Additional reporting by Jens Hack and Stine Jacobsen; Editing by David Goodman)

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