Over the weekend two German companies announced US takeovers worth $25 Billion according to Money CNN.
Two German firms snapped up U.S. competitors for $25 billion before the opening bell Monday, looking beyond record stock prices and a stronger dollar to acquire advanced technology in booming sectors.
The German companies are Merck KGaA – MKGAF and Siemens – SIEGY. They picked up, respectively, Sigma-Aldrich – SIAL and Dresser-Rand – DRC. Merck enhanced its ability to compete in the life sciences sector and Siemens gained a foothold in the US oil shale fracking boom. The Germans buy US companies despite a progressively stronger US dollar and surging US stock market. The Germans buy US companies because they consider the assets they obtain to be excellent long term investments.
US Company Takeovers Not Limited to the Germans
Last year investors were surprised by a Chinese takeover of the world’s biggest pork producer, Smithfield Foods, for $4.7 billion.
One year ago this month, a Chinese company bought America’s largest pork producer, Smithfield Foods. The $4.7 billion deal is the biggest Chinese acquisition of a U.S. company to date.
When China’s Shuanghui International paid more than the market value for Smithfield those familiar with the industry and the company wondered if the Chinese government was behind the deal. Smithfield is responsible for a quarter of the US pork industry. While today Germans buy US companies to upgrade and round out their technology the Chinese, in this case, have more than a billion people to feed and are buying control of part of the pork food chain. Like the Germans, the Chinese paid a premium for their purchase.
Why Do Foreigners Buy US Companies?
Foreigners, including Germans buy US companies because they are acquiring value. Even though the US stock market is rising many expect it to keep going up. That assumption makes today’s stock prices appear cheap. And the European Union is still flirting with a deflationary cycle which makes European companies with money look elsewhere for growth. Likewise, China is still flirting with a housing bubble and seeing its stellar economic growth slow down. Today the US with its high tech industries, strong agricultural sector and immense energy deposits looks like the best game around, when viewed through foreign eyes.
What Does Siemens Do?
When Siemens buys Dressler-Rand it gets a foot into the US fracking boom. How does this fit with the Siemens business model? Siemens which trades in the USA as an over the counter ADR is often referred to as the German General Electric. According to Google Finance, Siemens AG
is a globally operating technology company with core activities in the fields of energy, healthcare, industry and infrastructure. Siemens business activities focus on four Sectors, Energy, Healthcare, Industry and Infrastructure & Cities. Siemens has two additional reportable segments: Equity Investments and Siemens Financial Services (SFS). The Energy sector comprises four divisions: Power Generation, Wind Power, Power Transmission and Energy Service. The Healthcare Sector includes four divisions: Imaging & Therapy Systems, Clinical Products, Diagnostics and Customer Solutions; and one sector-led Business Unit, Audiology Solutions. The Industry Sector consists of three divisions: Industry Automation, Drive Technologies and Customer Services; and one sector-led Business Unit, Metals Technologies. The Infrastructure & Cities sector consists of five divisions: Rail Systems, Mobility and Logistics, Low and Medium Voltage, Smart Grid, and Building Technologies.
Siemens is a smart and well-run company. It does business all over the world and has the expertise to spot and take advantage of opportunities that enhance their own business sectors. This is a prime example of how and why Germans buy US companies.