Siemens to buy Diagnostics Products for $1.9bn

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Klaus Kleinfeld on Thursday unveiled the largest acquisition in his 15 months as chief executive of Siemens as the German conglomerate agreed to buy Diagnostics Products Corporation for $1.9bn to strengthen its most profitable division.

The cash purchase of the Los Angeles-based company will allow the medical division of Siemens to offer in-vitro diagnostics alongside its current high-tech imaging equipment. It bulks Siemens up as part of a three-way fight with General Electric of the US and Philips of Holland for leadership of the fast-growing medical sector and in particular the early detection of diseases.

However, investors sent Siemens’ shares sliding as uncertainty over its two problem divisions – telecommunications equipment (Com) and IT services (SBS) – overshadowed strong results from its other ten divisions.

Shares in Siemens were down 3.3 per cent at €77.18 in late afternoon trades.

Siemens is struggling to find a convincing strategy in Com with pressure coming from the continued consolidation in the industry, as seen in the takeover of Lucent by Alcatel. Mr Kleinfeld on Thursday said there would be another large round of job cuts at Com soon, on top of the 1,500 shed since last September.

He also explicitly refused to reject speculation that Siemens could sell Com. Rumours of interest from various equipment makers have been around for months but people close to Siemens have said none were interested in taking on the whole division, with most focusing solely on the profitable mobile networks unit.

Bankers in Germany believe any solution to Com will be messy and piecemeal with parts sold, others restructured or perhaps supported through a joint venture. A similar approach was taken with SBS which sold a quarter of its business, cut 5,400 jobs and is now concentrating on the vastly reduced areas of IT solutions and outsourcing.

Com made a profit of €25m ($31.1m) in the second quarter, down 75 per cent, giving a margin of 0.8 per cent while SBS made a deepened loss of €194m with a margin of –13.9 per cent.

Overall, however, Siemens reported solid growth elsewhere with operating profit rising 8 per cent to €1.32bn as revenues rose 21 per cent to €21.5bn. Its transport division also remains far from its target of a 5-7 per cent margin, having reached 2.1 per cent up from 2 per cent in the previous quarter.

Siemens said it remained interested in bulking up its medical division further. Industry experts said the diagnostics business of Schering, the German drugmaker being bought by Bayer, would be a good fit as well as an imaging agents company such as Amersham, which GE bought in 2004.

JP Morgan advised Siemens and Lehman Bros acted for DPC.

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