Politicians give Siemens push on VDO sell-off

The future of the VDO car components business was always going to be the first big test for Peter Löscher in his new role as chief executive of Siemens. Whatever the decision, he risked disappointing his investors or his unions, or indeed both.

The German conglomerate’s former management had committed itself to floating a minority stake in VDO by the end of September. Although Continental, the German tyre and car components group, had offered to buy VDO outright, Siemens preferred to avoid a confrontation with the unions opposed to a sale. Reluctantly, the unions accepted the idea of an initial public offering as long as Siemens maintained control of the business.

But investors have continued to press Siemens to sell its car components division. After all, Continental offered far more than an IPO would bring in and the sale would signal the conglomerate’s commitment to streamline and shed non-core activities to focus on its energy, medical equipment and infrastructure activities. Analysts consider Siemens a prime restructuring play and estimate the group could raise as much as €30bn from non-strategic disposals. A sale of VDO alone would raise more than €10bn.

With Siemens still entangled in a massive bribery scandal, Mr Löscher needs to win the confidence of the financial markets. At the same time, he cannot afford to upset his unions, worried that the sale of VDO could be a first step towards breaking up the group. So until last week, it looked a tricky dilemma for the new man at Siemens.

A sale has always looked the obvious choice, but without union backing it risked provoking a labour backlash the company clearly wanted to avoid at a time when it is desperately trying to sort out its complex governance problems and restructuring. But Mr Löscher now appears to have secured unexpected support from influential German politicians that could tilt the balance in favour of an outright sale of VDO.

Not that the politicians have suddenly been converted to free market virtues. Quite the opposite. With private equity firms hovering around Continental and TRW, the US car components group controlled by Blackstone, also interested in acquiring VDO, German politicians are now openly calling for a merger between Continental and VDO to create a new German champion in the car components sector, second only to Bosch.

None is more active than Christian Wulff, the influential president of the state of Lower Saxony and a Christian Democrat ally of Chancellor Angela Merkel. Lower Saxony is also a big shareholder in Volkswagen. Mr Wulff says a merger would be preferable to seeing VDO and its 53,000 employees fall into the hands of financial investors. The irony is that there could not be a more un-German company than Continental, with its tough approach to restructuring. But then, it is still better than a locust.

Nuclear spring

While most of its rivals continue to jostle in the consolidating European energy market, EDF is now looking across the Atlantic for its long-term future growth. The French state-controlled electricity behemoth is betting on a renaissance of the North American nuclear industry after a 30-year pause during which no new nuclear reactor was commissioned in the US.

It is a calculated gamble. But Pierre Gadonneix, EDF’s chairman, is convinced that the US will provide his company with a strategic opportunity to expand its nuclear activities similar to the “golden age” of the industry in the 1970s and 1980s. After all, the US is now again looking at nuclear power as a clean and economic alternative to natural gas, fuel oil and coal to produce electricity.

The French company has just teamed up with one of the US nuclear industry leaders, Constellation Energy, to develop a series of new nuclear plants in the US and Canada. EDF will initially invest $625m in the strategic joint venture. But it has also negotiated the right to acquire eventually a 9.9 per cent stake in Constellation valued at about $1.7bn at current market prices.

EDF is banking on its nuclear expertise and its know-how in running France’s 58 nuclear reactors to take a lead in the expected renaissance of the US nuclear business. Its US partner is already associated with Areva, the French nuclear engineering company, and plans to build and run with EDF four new generation Areva nuclear plants now under licensing review by the US Nuclear Regulatory Commission.

But to pull off its gamble, the biggest challenge is not the obvious need to ease continuing public fears and resistance to nuclear energy. The industry as a whole is looking for engineers to manage and develop the revival of the sector. Areva this year alone wants to recruit 6,000 engineers worldwide and – like its US and Japanese rivals – is struggling to find young talent to turn the nuclear renaissance into something more than a pipe dream.


Copyright The Financial Times Limited 2017. All rights reserved. You may share using our article tools. Please don't copy articles from FT.com and redistribute by email or post to the web.