/ciol/media/agency_attachments/c0E28gS06GM3VmrXNw5G.png)
Follow UsP>By Sarah Knight and Ben Klayman
FRANKFURT/CHICAGO: Crain's Chicago Business's Web site reported over the weekend that the German electronics and engineering firm and the world's No. 2 maker of wireless phones were close to a swap of businesses that each generate just over $4 billion, citing sources familiar with the situation.
Siemens is also asking for an unspecified cash payment as part of the deal, according to Crain's website. The companies have reportedly been talking on and off for the last year. They see a sector shake-out as inevitable as mobile network equipment makers struggle with falling sales. Most of the eight world players are losing money. Competition in handsets, where Finland's Nokia has a clear lead, is also stiff.
"Unless you can be a No. 1 or No. 2 player in any segment of technology, you're pretty much reduced to inferior profitability," UBS Warburg analyst Jeffrey Schlesinger said. UBS Warburg has acted as an underwriter and performed investment banking services for Motorola in the past year.
Siemens shares closed off 6.5 percent at 34 euros, while the blue-chip German DAX finished down 5.1 percent as investors ditched technology and banking stocks fearing further deterioration of the global economy. Motorola's shares closed off 1 percent at $10.18 on the New York Stock Exchange on Monday.
Straight Sale?
Lehman Brothers analyst Tim Luke said in a note that Siemens and Motorola could be considering a straight sale of Motorola's wireless equipment unit to Siemens. Others said the swap theory made sense as the German firm seemed more suited to systems than consumer products as it juggles businesses ranging from power generation units to train making, light bulbs and industrial systems and services.
Siemens, which ranks third in mobile network infrastructure behind Ericsson and Nokia, has merely made it known it wants to participate in consolidation. A spokesman for IG Metall union in the state of Bavaria said Monday he had heard nothing about either.
"Siemens has almost nothing in the U.S. and this would give it the huge access to a ready installed base," said Chris Heminway, an analyst at Lehman in London. He has an "underperform" rating on Siemens. Motorola for its part would boost its share of the handset market -- a key Motorola business -- to 25 percent, bringing it closer to Nokia's 37 percent share. It would also shed a loss-making unit that it has struggled to make profitable.
"At this point it is still an if with a capital I, but if (the swap) happens it would definitely be positive for Motorola," said Alex Vallecillo, a senior portfolio manager with Armada Funds, which owns shares of Motorola. The rumored deal would be neutral to accretive to earnings for Motorola as its infrastructure business is likely to be near or slightly below break-even in 2003, Luke said.
One banker familiar with both firms but not the alleged talks said the swap is conceivable but would have to overcome challenges. "There are political problems with it," said the banker, who asked not to be identified, referring to the alleged talks. "Siemens is still a very German company and Motorola is still a very American company. They're both conservative."
Search for partners
In April, Siemens Chief Executive Heinrich von Pierer said he saw no immediate prospect of a merger in mobile telecoms. Earlier that month, it secured a deal to license Motorola's third-generation handsets to sell under its own logo.
In May, Lothar Pauly, a board member of Siemens's mobile telecom unit, said while the unit would like to offer the CDMA (code division multiple access) wireless network standards most commonly used in the United States, it would not develop them in-house.
Motorola is the third-largest player in CDMA, supplying carriers such as Sprint Corp., Verizon Communications and Japanese operator KDDI, as well as 30 percent of the Chinese wireless infrastructure market.
Siemens is currently focused on the standards most commonly seen in Europe: GSM/GPRS (general packet radio services) and UMTS (Universal Mobile Telephone System) standards. It is struggling to be profitable in the mobile network sector as telecom operators, saddled with debt, hold back on investment.
Meanwhile, Motorola's wireless equipment chief told his employees in June the next 18 months were critical for the group, after the company had said a month earlier it needed to find a partner. The unit posted a $1.4 billion loss last year.
In February at a European mobile trade show, an executive in Motorola's handset unit also said the firm was looking to acquire a rival in handsets to help boost its market share.
(Additional reporting by Jeffrey Goldfarb in New York)
© Reuters