August 4, 2011 / 2:05 PM / 8 years ago

Deatalk: Siemens could scrap Osram IPO as valuation plunges

FRANKFURT/MUNICH (Reuters) - Siemens (SIEGn.DE) may postpone the planned listing of its Osram lighting unit or opt for a spin-off as tough equity markets and increasing competition in the sector hit its valuation.

Halogen inserts for low-energy consumption light bulbs are seen at an Osram factory in Molsheim, eastern France December 11, 2008. REUTERS/Vincent Kessler

The multi-billion euro initial public offering (IPO) of Osram, the world’s second largest lighting maker after Philips (PHG.AS), was slated for the European autumn.

But since the plan was mooted, its potential value has tumbled.

“We believe that the planned IPO could well get postponed,” said analyst Axel Funhoff of ING financial Markets.

“The market’s valuation expectations are likely to come down versus earlier expected valuation ranges.”

Funhoff had valued Osram at nearly 6 billion euros ($8.6 billion) in February but has now slashed it to 5.6 billion euros, as the lighting market suffers from a weaker climate, significantly higher raw materials costs and pricing pressure.

In June, Philips warned of sharply lower profits at its lighting division which, along with Osram and other Western rivals, has struggled to compete with lower-cost Asian makers while consumer demand in Europe is likely to remain fragile.

Another analyst, who declined to be named, estimated Osram’s value would now have slipped to almost 4 billion euros, from more than 5 billion.

In February some had valued Osram at as much as 8 billion euros and the minimum at that time was 5 billion euros.

As well as the sector troubles Osram faces, the European market for new listings has also had a tough year, with more than 20 deals pulled. Many of those companies which did manage to debut are now trading below their offer price.

“In general investors are also now more risk averse in equities,” said ING’s Funhoff.

Investors have become increasingly choosy about which IPO candidates they will back, often demanding big discounts and prompting many companies to scrap flotations rather than sell at rock-bottom prices.

“If the market is weak and the climate is negative, I can well imagine it will pull the plug on Osram,” said Thomas Wybierek, analyst at NordLB.


Siemens said it would remain a major long-term investor in non-core Osram after the IPO but wants to avoid the heavy costs of making it fit to compete with Asian rivals.

Unicredit analyst James Stettler said Osram’s operating margin in the third quarter to June dropped 500 basis points to 5.3 percent year-on-year, largely due to structural challenges in the lighting market.

“The Osram IPO is still planned to go ahead ... but this will not be an easy sell,” he said, valuing the company at 3.8 billion euros based on a sum-of-the-parts model, down from 5 billion in February.

Light emitting diode (LED) chips are transforming the lighting industry, pushing traditional incandescent bulbs aside in favor of less energy-consuming alternatives.

With competition hotting up, Osram needs considerable investment, possibly via acquisitions, to defend its position.

Unlike Philips, which has built up its presence in luminaries and lighting solutions, Siemens’ exposure in luminaries is very limited. According to analysts, it will have to invest at least 1 billion euros to stay competitive.

But competition and pricing has been fiercer and steeper than expected since Siemens announced the IPO plans in April.

“The longer one waits, the bigger is the pressure for Siemens to invest again in it,” said Chevreux analyst Bernd Laux. “A delay of three to six months should not be a problem.”

Last week Siemens finance director Joe Kaeser said the company would see how markets developed in the autumn.

“An IPO has no value on its own, but there is value in being listed,” he added, prompting speculation it was considering an alternative way to exit.

Instead, Siemens could demerge Osram and give the shares to existing Siemens shareholders, a move taken by Bayer (BAYGn.DE) when it spun off specialty chemicals unit Lanxess (LXSG.DE).

“I could imagine Siemens would now have to give up the idea of paying extra dividends from the IPO proceeds and instead would give Osram shares to the existing Siemens shareholders,” said the analyst who declined to be named.

“The difference with this scenario is that there will be no cash inflow for Siemens,” the analyst added. ($1 = 0.700 Euros)

Editing by Kylie MacLellan and David Cowell

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