Troubles Spinning Off the Lighting Division: General Electric Company (GE), E I Du Pont De Nemours And Co (DD)

Competitors and Industry Outlook

As a global conglomerate, Siemens has few “equals.” Since it operates in many of the same industries and sub-industries, General Electric Company (NYSE:GE) is probably Siemens’s closest American competitor. With roughly the same employee count, GE is about as visible as Siemens. Of course, General Electric Company (NYSE:GE) is widely perceived as “healthier” than its German counterpart and boasts a far higher market capitalization.  Also, GE has an operating margin of 12%, which is 3% greater than Siemens.  General Electric Company (NYSE:GE) has $77 billion in cash, so taking over Osram would be a very small investment.  On top of that, cash flow from operations is $31 billion annually.

Other key Siemens competitors include Delaware-based E I Du Pont De Nemours And Co (NYSE:DD) and Cargill, the privately held Minneapolis-based agricultural and materials conglomerate.  Siemens is about twice the size of du Pont in terms of market cap.  However, du Pont has the cash available to purchase Osram, with $4.41 sitting in its bank account.  Plus it has almost $5 billion more flowing in from operations annually.  Du Pont could use some changes, though, as their stock has fallen 5% in the last year.  Unfortunately, neither General Electric Company (NYSE:GE) or du Pont would likely have any interest in purchasing a distressed lighting manufacturer like Osram.  They need to focus on their profitable businesses.

The Osram deal might create some value for Siemens shareholders in the event that the lawsuit is dismissed. At the very least, savvy investors could earn a substantial premium of 10 percent or more by dumping their Osram shares after the spin-off’s completion. At the same time, those who believe that the suit might ultimately be dismissed could amplify this “dividend” trade by opening a short position in Siemens. After the dismissal announcement, the company’s stock could fall back to its pre-lawsuit levels.

In sum, the shareholder lawsuit that seems likely to delay the Osram spin-off could provide an opportunity for profit for seasoned investors. However, there are substantial risks to any trade in this rapidly evolving situation. What’s more, Osram is not a particularly strong property. As such, many investors might prefer to avoid it altogether. In any event, interested traders should keep a close eye on Siemens during the coming weeks.

The article Troubles Spinning Off the Lighting Division originally appeared on Fool.com and is written by Mike Thiessen.

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