Invensys' Henriksson Steps Down

On March 24 Invensys replaced its chief executive, Ulf Henriksson, who last year raised the prospect of the British company being sold to the Chinese, saying its finance chief Wayne Edmunds takes over as chief executive with immediate effect.

Shares in the maker of rail signaling systems and controls for industrial plants, nuclear power stations and domestic appliances fell as much as 8 percent after the announcement, and were trading 5 percent lower at 340 pence by 1324 GMT.

Henriksson, chief executive since 2005, generated headlines in November when he said China Southern Rail could buy the company at the right price. His comments, and subsequent share price rise, forced the company to issue a statement denying it was in takeover talks.

Chairman Nigel Rudd said Henriksson had transformed Invensys, but Edmunds would lead the company through the next stage of development.

Charles Stanley analyst Jeremy Batstone-Carr said Henriksson had done a reasonable job as chief executive and had attempted to reduce the cyclicality in the business by building up the rail business in particular.

But he had also raised the possibility of a break-up of the company, he said.

"We haven't had a profit warning so the market reaction is fairly muted, which is probably cautiously appropriate in the circumstances," he said.

Nils Pratley of The Guardian comments that Invensys is enjoying a period of relative stability: and adds that it’s unclear why chief Ulf Henriksson has been dropped, and speculates that he just too hungry for excitement:
"Ulf Henriksson, the human dynamo of Invensys, found himself turned off today. He was dropped as chief executive despite becoming the first boss in ages to make a success of the old BTR/Siebe engineering combo."

Unfair? One can understand why Henriksson might be miffed, but he did cut a strange figure sometimes. In a newspaper interview last year he speculated on the chances of Invensys being bought by a Chinese partner. A clarification followed.

There is clearly more to his departure than that. But the episode fuelled the sense that Henriksson was too hungry for excitement – yes, even in the world of control systems. Stability has taken a long time to arrive at Invensys. Best not to risk it.

[Editor's Note: The Financial Times offers a slightly different explanation for Henriksson's quick dismissal: He earned a reputation as too much of a micromanager who didn’t spend enough time looking at the bigger picture and managed to alienate many of his subordinates. ]

The fact remains that the sudden shake-up fuels the lingering rumors that Invensys is ripe for takeover.

Merger and Bid Fever Runs Rife

Invensys, valued at GBP2.7Bn on the London stock market, was the subject of further bid rumors late in February - but then Invensys has that unenviable reputation. Speculation was boosted after the UK sale by Wood Group of its well-support business to GE Oil & Gas for $2.8 billion, plus the spin-off of the ITT water metering business as reported by Bloomberg.

Then Joe Kaeser, finance director at Siemens, in an interview with the Financial Times, suggested that the company was ready to spend several billions on an acquisition. The Siemens group says it is looking to strengthen both its power networks and plant automation businesses, but since it also has extensive rail interests, this made Invensys an obvious candidate.

During the following week the Observer newspaper suggested that several other international rivals were once again looking to evaluate the possibilities of an Invensys acquisition, listing Honeywell, Emerson, ABB, Alstom - and not excluding possible interest from China via CSR Corp and CNR Corp. These two Chinese rail services and network supply companies recently saw their share prices surge in the Shanghai market on the back of a Chinese government commitment to spend $106 billion on rail network construction in 2011. Invensys last year entered a venture with CSR Corp to become the Chinese railcar maker’s exclusive signalling supplier.

"For companies like Alstom and Siemens, the easiest, quickest and simplest way to try and prevent the Chinese competing with them in their back yard would be to prevent them from getting hold of this rail-signaling technology" says Bloomberg, suggesting that either one might want to crush Invensys.

If Not Invensys, Who?

Perhaps more interesting is to speculate as to who Siemens might acquire if they did not wish to consider Invensys. Kaeser said the company had reached a point of "management maturity," and, therefore, might need a challenge. Stephen Simpson of Investopedia suggests that Eaton might be the next candidate in line, while even Rockwell, or the process solutions part of Honeywell might be evaluated. The suggestion of Siemens making a bid for Emerson, with a $46-billion current market capitalization, is quoted as apparently a bit too big even for Siemens. Jim Pinto also adds in the GE Intelligent Platforms Division as another possibility: meanwhile Bloomberg also mentions Rockwell.

Simpson explains the background, which is that Siemens CEO Peter Loescher has earned high marks for cleaning up and transforming the company, putting it back on a credible growth path, and now has prodigious cash resources (Pinto assesses these at $21 billion) that need to be used. What makes an acquisition route a little more surprising, Simpson says, is that a lot of the mess that Loescher had to clean up at Siemens was a by-product of a long series of earlier, questionable acquisition deals that never really delivered on their price or promise. Perhaps, Simpson says, "A good CEO is a good CEO, and Loescher has completed the tidying up. He maybe feels he can make a success of integrating such deals where his predecessors could not."

While the US-based analysts also look at European candidates for Siemens acquisition, such as like Alstom and Legrand, it would seem more logical for Siemens to look to acquire wider power industry market presence and installed base, and while the dollar is lower than it has been, attention comes back to US-based companies.

But maybe Siemens will be looking in global terms. There is another company regularly mentioned in these pages that fits the product, market and bargain price criteria, and where the shareholders are not too happy. It just depends whether Loescher really does have a broad, global outlook, because a Siemens acquisition of Yokogawa would be culturally challenging, but not unprecedented, and interesting. If Siemens does that deal, the acquisition of Invensys looks like a simple follow-on. But then is Siemens’ focus only on power and plant automation, or is it interest more in the U. S or the Far East markets?

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