What's going on?
German conglomerate Siemens raised €4.2 billion (roughly $5.2 billion) on Friday as it sold 15% of its independent Healthineers division to investors via an IPO.
What does this mean?
As part of its “Vision 2020” plan to restructure itself, Siemens has decided to spin off its massive medical technology business (the world’s largest maker of medical imaging equipment) into a separate company. While Siemens will retain 85% of the company, and therefore a big say over how it’s run, Siemens says there are a number of benefits to the spinoff (for example, Healthineers can borrow money instead of relying on funding from Siemens).
While some had expected the newly issued shares in Healthineers to be priced higher, its German stock market debut seems to have gone fairly well overall – shares of Healthineers were up 7% after its first day of trading!
Why should I care?
The bigger picture: The whole isn’t necessarily greater than the sum of its parts…
As a big conglomerate, Siemens has a ton of different businesses that are managed under one umbrella. So, when investors buy its stock, they’re essentially exposed to risks in all of those (potentially very different) businesses. The differing exposures of a big conglomerate often cause it to be valued lower than it might be if the different businesses were independent companies. Spinoffs like the Healthineers case, however, allow conglomerates to narrow their focus – and, often, become more attractive to investors.
For markets: Not all investors are sold on Healthineers’ competitiveness.
The company’s slightly disappointing opening share price might reflect investors’ wariness over Healthineers’ chances in the highly competitive medtech space. Siemens’ management had been taking pains to build investor confidence by cutting costs and improving profitability at the company, but that only seems to have worked to an extent. At least the IPO wasn’t accompanied by another awkward morphsuit dance ensemble…