Low Bids Prompt Siemens To Rethink Hearing Aid Biz Sale

FRANKFURT/MUNICH (Reuters) – German industrial group Siemens (SIEGn.DE) is considering alternatives to disposal for its hearing aid unit because of low bids and may look at a tie-up or even growing it on its own.

Board member Hermann Requardt told a general staff meeting on Tuesday Siemens was ready to explore distribution partnerships with retailers, two sources present at the meeting told Reuters.

Requardt, who heads the group’s healthcare sector, said Siemens was in the midst of assessing bids for the Siemens Audiologische Technik GmbH (SAT) business.

“He indicated however that Siemens was also prepared to hold on to the hearing aid unit and if need be to invest in it as well. It is also possible that SAT itself could enter into distribution partnerships with hearing aid retailers, but not at any price,” one source who attended the meeting said.

Siemens declined comment.

A highly placed company source told Reuters he expected Siemens would no longer sell the unit because bids from private equity firms last week were way below the 2 billion euros ($2.70 billion) minimum price the company had in mind.

The source said financial investors were reluctant to pay more than 1.6 billion euros because a buyer would have to invest significant sums to beef up SAT’s distribution network to a level that could compete with rival Sonova (SOON.VX).

If the sale was called off, the source estimated Siemens would have to grow its own dealership network to grapple with a rival who is privy to the strengths and weaknesses of the German industrial conglomerate.

Former SAT head Valentin Chapero Rueda joined Sonova as CEO in 2002 and has headhunted around 10 SAT managers since then, the source said.

DISTRIBUTION IS KEY

“Siemens needs to invest around 600 million euros to build up its own dealerships and financial investors have apparently factored that into their bids,” the source said.

The source forecast that with an expanded distribution network Siemens would likely wait for another two years before making another attempt to put SAT on the block.

Sources familiar with the matter had told Reuters last week Siemens might drop its plan to sell the business due to big differences over a sale price.

Sonova has managed in the past few years to expand its sales network by buying up dealerships that sold many brands and transforming them into exclusive dealers.

Siemens Chief Financial Officer Joe Kaeser told reporters in January that SAT faced “challenges in the sales structure” in the medium term.

Siemens does not disclose financial data for SAT. One source said its operating margin has always been well above 20 percent but dropped to 26 percent last year from 30 percent.

Siemens regards SAT as a non-core business in its Healthcare segment because its distribution channel is totally different from the other cash cows within the sector.

Diagnostics — which offers laboratory testing for haematology, chemistry and urinalysis — and Imaging — whose products include computed tomography, mammography and radiography — sells directly to hospitals and counts General Electric (GE.N) as its main competitor.

By Marilyn Gerlach and Jens Hack
(Editing by David Cowell)