Hyesung Lim

On Wednesday, the European engineering conglomerate Siemens AG announced its plans to list its diagnostics technology division Healthineers on the Frankfurt stock exchange during the first half of 2018. The partial flotation of this €40bn medical solutions business is anticipated to be the largest public offering in Germany since the €13bn listing of Deutsche Telekom in 1996.

Michael Sen, a member of the Siemens supervisory board overseeing the Healthineers IPO, described Frankfurt as “one of the world’s largest trading centres for securities [whose] importance will continue to increase due to Brexit.” In explaining the board’s decision to favour Germany over other perhaps more popular cities like New York, Hong Kong, and London, he said “As a highly liquid trading venue, Frankfurt is attractive for investors from around the world.” And indeed Frankfurt has a special edge over exchanges in other financial hubs when it comes to its strong appeal to Asian investors and its perception as being “truly global.”

In the third quarter of this year, Healthineers was the best performing of Siemens’ nine divisions. Offering a wide variety of products and services in healthcare IT, laboratory diagnostics, medical imaging, and therapy systems, the unit reached a quarterly sales of €3.7bn. Besides contributing the largest fraction to its parent company’s €21.4bn revenue, it was also the most lucrative unit with a profit margin of 19 percent. Siemens did not provide further details about the upcoming flotation of this medical solutions unit, but persons familiar with the company predicted the size of its listing to be a slice of up to 25%. The IPO of this minority stake, which could be worth anywhere between $6 billion and $12 billion, will be ranked as one of Europe’s biggest listings over the last few decades.

The Healthineers IPO is thought to comprise a part of the industrial giant’s latest move to revamp its wide structure of four sectors—industry, energy, healthcare, and infrastructure—and transform itself into a holding company. In 2014, Siemens chief executive Joe Kaeser unveiled the group’s Vision 2020, which sets forth a central mission to “strengthen core.” The plan seeks to gather the firm’s focus on its core industrial operations by spinning off other less relevant units in a business model described as a “fleet of ships.” As a direct consequence of this huge restructuring movement, there have been a multitude of M&A and sales activities along the peripheries of Siemens. In April, the group’s renewable energy unit merged with the Spanish wind turbine company Gamesa. The engineering group holds 59% of the shared capital while Iberolda holds 8% of the sum. The rest has been listed separately in Madrid. In a similar fashion, the lighting business Osram, the household appliance division Bosch Siemens, the chipmaker Infineon, and a range of other telecommunications units have all been sold off. The next in line is the rail division, which is set to merge with the French company Alstom before being listed in Paris.

Kaeser emphasised that “The individual Siemens businesses must be able to keep up with the specialists in the industry and be at least as good as their strongest competitors.” With a firm conviction that “conglomerates have no future,” the engineering firm has been reinforcing a strategy that seeks joint ventures or partnerships where it can act as an investing partner or a holding company. With the growth of IT and automation causing multidimensional disruptions across the industrials sector, Siemens has been truly diligent in their efforts to break away from the outdated structure of a conglomerate and generate smaller specialised entities that can respond faster to the rapid changes in consumer and market sentiments.

“It won’t be the largest or the most diversified companies that will be successful in the era of industrial digitisation, but those that are best adapted to the rapidly changing market conditions.”