Siemens fails to sell loss-making unit

Siemens, Europe’s largest engineering group, has failed in its attempt to sell its loss-making business telecoms unit, as talks with the last remaining serious bidders were abandoned.

The consortium, consisting of financial investors Permira and Apollo Management, and Siemens agreed two weeks ago not to continue with their talks to buy Enterprise Networks, sources familiar with the process told FT Deutschland, the FT’s sister paper.

Talks between the two parties had lasted several months. Permira and Apollo were the only bidders left, sources close to the talks said. Cisco, the US technology group, is said to be watching the process but industry insiders think a bid unlikely. The failed sale, led by Deutsche Bank and Morgan Stanley, is another serious blow for Klaus Kleinfeld, Siemens’ chief executive.

It follows the insolvency of the group’s mobile phone division, which had been sold to BenQ last year in a deal that saw Siemens invest €50m ($64m) in BenQ shares and pay the Taiwanese group €250m in cash and services. Munich-based BenQ Mobile filed for insolvency last month after its Taiwanese parent pulled the plug on the business.

Siemens is also still suffering from an ongoing corruption affair at Mr Kleinfeld’s former division, the communication technology unit Com. The two investors declined to comment on the new information on Tuesday, while a spokesperson for Siemens said talks were still ongoing and “nothing has changed”.

Enterprise Networks’ turnover fell by 3.4 per cent to €3.3bn in the business year to the end of September and Siemens said losses had increased compared with the previous year. Industry insiders estimate the group’s annual operating losses to be €300m.

Mr Kleinfeld had ann-ounced several months ago that he intended to sell the unit, which employs 16,000 people, by the end of the year, although he did not repeat that claim at the group’s annual press conference this November.

In June, Siemens was still adamant that a conclusion of talks was imminent, after several financial investors, including KKR and Francisco Partner, as well as companies with strategic interests, including Avaya, the US telephone systems maker, and Nortel, the Canadian telephone outfitter, looked at the unit.

People involved in the sale said that BenQ-related worries among potential buyers had halted the process, while sources close to the sale also said that “Siemens got cold feet after the trouble with BenQ”. Investors could have demanded a cash-flow guarantee, as they did in the case of BenQ, while Siemens would also have had to accept a three-digit million negative price tag to sell the division successfully.