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Siemens Comm Has M&A Callers

Phil Harvey
News Analysis
Phil Harvey
4/17/2006
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As the world waits for another telecom equipment megamerger, foreign press reports and Wall Street analysts this morning have Siemens Communications Group at the center of the next big deal. (See Alcatel/Lucent: The Domino Factor.)

Prudential Equity Group LLC analyst Inder Singh this morning wrote that a combination of Nortel Networks Ltd. and Siemens Comm, with Siemens AG (NYSE: SI; Frankfurt: SIE) taking a minority stake in Nortel, would "offer a broad geographic reach, with legacy carrier relationships in Europe, North America, and Asia."

The analyst writes: "We believe a joint Siemens/NT would hold lead shares in several key markets, including Enterprise Telephony (28% worldwide market share), Next-Gen Switching (36%), Wireless Infrastructure (22%), and Optical (19%). Even with the presence of a combined Lucent/Alcatel, we believe the Siemens/Nortel combo would hold the #1 or #2 share in each of these markets."

Also, according to several wire reports, the German newspaper the Frankfurter Allgemeine Sonntagszeitung reported Sunday that Siemens was in talks to sell its communications group to Motorola Inc. (NYSE: MOT), but it's not clear from the reports how far the talks have proceeded. There may be some holdup with Siemens trying to offload several other units unwanted by Motorola as part of a proposed deal, according to the report. Moto was reportedly only interested in buying Siemens' mobile phone networking unit.

More Motorola M&A talk is expected as the company is set to report earnings tomorrow, and no doubt analysts will be eager to hear where else Motorola is looking for growth.

Light Reading has previously reported that Siemens was in talks to sell its communications unit. Those talks, reported back in March, were said to include Nortel. And, though Nokia Corp. (NYSE: NOK) and Lucent were also party to discussions with Siemens, Ericsson AB (Nasdaq: ERIC) emerged as the most likely candidate to take the Siemens Communications Group at the time. (See Sources: Lucent, Nokia in Play for Siemens.)

The suitor talk isn't far-fetched, as Siemens has hinted time and again that its communications business is one of the main things preventing it from hitting its financial targets. (See Siemens Spawns a Problem Child.) And, while Ericsson remains a strong possibility, it's worth noting that a Siemens/Nortel deal is more workable as both companies are in the process of remaking themselves, so they're already in a mood to shed business lines, strike up partnerships, etc. (See Siemens Shuffles Top Deck and IPOs & M&A: London Gossip.)

Even when facing a combined Lucent Technologies Inc. (NYSE: LU) and Alcatel (NYSE: ALA; Paris: CGEP:PA), the possible combo of Nortel and Siemens Comm would still have a stronger market position in several tech areas. These include next-generation switching, mobility (though Lucent/Alcatel will likely dominate in CDMA), and IP phones and PBXs.

While Nortel doesn't have much of a broadband story now, Siemens would give the duo a lead in the DSL customer premises equipment space -- a position that could be exploited down the road when Nortel solidifies its broadband strategy.

What would Nortel cost? "Assuming a slight premium of 5%, this implies a cash cost to Siemens for an outright purchase of NT at $12.8 billion -- something of a stretch, but possibly manageable for the Siemens conglomerate with its $9.8B in cash and marketable securities, but some borrowing would be necessary," according to Prudential's Singh.

Singh writes that it'd be much less likely that Nortel would buy the Siemens unit, but "a willingness to sell on the part of Siemens could result in some favorable terms."

Siemens did not respond to requests for comment. A Motorola spokeswoman says the company doesn't comment on "rumors and speculation." A Nortel spokesman said the same.

— Phil Harvey, News Editor, Light Reading

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DCITDave
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DCITDave,
User Rank: Light Beer
12/5/2012 | 3:57:08 AM
re: Siemens Comm Has M&A Callers
Which company do you think can make the most of what Siemens Com has?

Ericsson or Nortel?

ph
iponthebrain
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iponthebrain,
User Rank: Light Beer
12/5/2012 | 3:57:06 AM
re: Siemens Comm Has M&A Callers
I don't think Nortel or Ericsson is a good fit. The Siemens Com product line is mostly land-line equipment and Ericsson doesn't much experience with land-line in the U.S. Also, the Siemens Com product line appears to have a lot of overlap with Nortel, especially with softswitch and media gateways.

If you believe the rumor mill, everyone and their dog is interested in acquiring this group - from small company to large player. Seems to me that the product line is not that great anyway - have you ever heard of Siemens equipment really being deployed in a substaial U.S deployment? Nortel and Ericsson would be better served if they merged together than picking through this bone pile.
brtechy
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brtechy,
User Rank: Light Beer
12/5/2012 | 3:57:05 AM
re: Siemens Comm Has M&A Callers
Let me disagree with the Nortel/Siemens fit comment. In fact, though there is a great overlap between the two as far as the Carrier VoIP market is concerned,this is still a developing market, and it would be very valuable to both companies to take such a strong lead by combining their positions. In addition to that, the combination would be very interesting for the Enterprise space, where Siemens has a strong position in SMB / entry level voice eqpt but no data presence, and Nortel has data + mid/large Enterprise solutions.

And in the wireless space this would fit nicely as well, one is strong in CDMA, the other in GSM, both can build a position in UMTS and Wi-Max.

Geographically speaking, it also does seem to make sense. NA and Asia for NT, EMEA and Latin America for Siemens as assets in the deal.
DCITDave
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DCITDave,
User Rank: Light Beer
12/5/2012 | 3:57:04 AM
re: Siemens Comm Has M&A Callers
re: "Geographically speaking, it also does seem to make sense. NA and Asia for NT, EMEA and Latin America for Siemens as assets in the deal."

Yeah, that's where NT-Siemens seems to make the most sense. There are relatively few geographic areas where both are dominant and constantly beating up on each other.

ph
iponthebrain
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iponthebrain,
User Rank: Light Beer
12/5/2012 | 3:57:04 AM
re: Siemens Comm Has M&A Callers
It depends what the end definition of Siemens Comm really is. They have carved up the N.A. unit up into a seperate entity. Will they sell the whole biz as-is or will they carve it up into a bunch of pieces. Agree, the only traction Siemens has is in Latin America where a Nortel or Ericsson purchase may make sense. The DSL CPE biz has never generated a profit - not sure the enterprise biz is a growing biz.
Physical_Layer
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Physical_Layer,
User Rank: Light Beer
12/5/2012 | 3:57:03 AM
re: Siemens Comm Has M&A Callers
I thought Svanberg said he doesn't want to do a big acquisition. Siemens comm group would be pretty big don't ya think?
alchemy
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alchemy,
User Rank: Light Beer
12/5/2012 | 3:56:54 AM
re: Siemens Comm Has M&A Callers
I can't imagine anybody is going to jump all over acquiring a business that loses money. Siemens Comm also has an awful lot of workers in countries with labor laws that make it incredibly expensive to lay them off. That's not a good thing when anyone buying this business would immediately need to eject half the people in a restructuring.
shaggy
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shaggy,
User Rank: Light Beer
12/5/2012 | 3:56:52 AM
re: Siemens Comm Has M&A Callers
Not only that, but Ericsson just bought out another wireline maufacturer, Marconi. Do they really need this redundancy with Siemens ICN? Doubt it.

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