Siemens announced that it will acquire the rail systems business from Invensys ISYS for GBX 1.4 billion, which is roughly 2 times fiscal 2012 sales and 10.4 times 2012 EBITDA. In isolation, the purchase makes sense for Siemens by helping the company build its presence in the rail industry and by giving the firm additional products in its current rail division.
That said, Siemens seemed to be on a path of rebuilding and restructuring, with the company disposing of noncore businesses and stripping costs out of the operating segments.
To that end, a new business requiring management’s attention may not be the best way to fully execute on the 2014 plan outlined earlier in November. Additionally, the disposal of the rail business may reopen the door for Emerson EMR or another interested party to make a run at Invensys’ industrial controls and automation business.
Management also unveiled a new two-year strategy aimed at cutting costs in order to make the business more competitive. The biggest concern with Siemens has not been the core franchise, but rather the number of different tangential businesses that distract the company and are often the source of midyear earnings charges. To the extent the two-year housecleaning addresses these issues, analysts see this as a positive for our valuation.
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