Siemens beats activist investors at their own game

LONDON: If you can't beat them, join them. This is in a nutshell how Siemens boss Joe Kaeser has avoided coming into the crosshairs of militant shareholders, unlike peers GE and ABB.

Since ousting his hapless predecessor Peter Loescher in a 2013 boardroom battle, Kaeser has taken his cues from the textbooks of investor activism by carving out businesses, cutting red tape and lifting payouts to investors.

The Munich-based group's impressive performance in the quarter to December vindicates the approach. The industrial businesses' profit margin rose by a quarter to 13 percent. For the full year, profitability may rise close to levels that Loescher promised but never achieved.

Nor is this at the expense of growth. Analysts expect revenue to increase 5.5 percent this year - the biggest rise in five years. Rather, Siemens is becoming a simpler, more streamlined company. Kaeser has pulled the group out of fringe businesses like household appliances and hearing aids.

The wind turbines unit is forming a joint venture with Spanish rival Gamesa , and the healthcare division will be listed separately. At the same time, the dividend is up by a quarter since 2013 and the group has embarked on two large share buybacks.

Siemens is also doing better at executing large-scale projects, lowering one-off charges that were a constant drag on profits in the past.

Granted, Kaeser hasn't got everything right. His biggest blunder was the acquisition of US oil kit maker Dresser-Rand for $7.8 billion in 2014, just before oil prices collapsed.

But overall, his home-made version of activism has paid off nicely for shareholders.

Since August 2013, Siemens has generated an average total shareholder return of 14.9 percent per year, compared with 7.3 percent at Swiss rival ABB and 9.3 percent at GE, which have both faced activist investor pressure.

Even after presiding over a 48 percent rise in Siemens' share price, Kaeser's success has yet to be fully reflected in the group's valuation.

The stock is trading at around 15 times the next 12 months earnings, Thomson Reuters data show. That's a discount of a fifth to ABB and 15 percent below GE. If Kaeser keeps up his DIY brand of activism, this gap will close.