Goodbye at Oerlikon to form a new Chinese Saurer phoenix
The proposed divestment of the Oerlikon Textile Natural Fibre and Component’s business to Chinese Jinsheng Group is certainly a major step for Oerlikon Group, together with other important divestments executed in the past two years, to have a more balanced business portfolio – textile activities drop from 53 to 33 % in sales and from 53 % to 36 % on order intake – and to escape more or less the cyclical business of natural fibre and components. The manmade fibre business remaining with Oerlikon (Barmag, Neumag) has been lately more successful and certainly also more profitable than the envisioned to be divested business. But the question remains if the Chinese Group Jinsheng and its major shareholder Pan Xueping are the adequate buyers to guarantee the long term future of the newly formed Saurer Group
Today, scarcely anyone remembers that Swiss Saurer has always been exposed to industrial tides . To my knowledge, it started already in 1982, when the original Saurer Group has been stgill engaged in building rock solid trucks and textile machinery, but then was forced to stop the production of trucks, a decision that was highly influenced by the credit giving banks. The company was in addition several times the victim of mismanagement. On the other hand a milestone was the launch of the new state-of-the-art weaving machine Saurer 500 at ITMA in Milan in 1985 that was widely regarded as a direct threat to the Swiss Sulzer weaving machines and this company did everything to erase the weaving business of Saurer, leading at Saurer to the decision to give up this promising business, and thus concentrating its efforts on embroidery and twisting machines meaning a niche business.
Somehow symptomatically, at the end of the 1980’s Saurer and Sulzer became the object of desire of financial investors, Sulzer first of Werner K. Rey and Saurer of Tito Tettamanti who later replaced Rey at Sulzer. Tettamanti enlarged Saurer’s activities by the acquisition of both German Volkmann and Schlafhorst. Another financial investor and CEO added Italian Graziano, a specialist for automotive gearboxes and transmissions, and in 2000 Heinrich Fischer (who will return as Chairman of future Chinese Saurer Group) acquired Barmag and Neumag, both specialists of machinery catering to the manmade fibre sector and thus complimenting the natural fibre business.
There were further ups and downs and financial investors had the say at Saurer, as well as at Oerlikon Corporation where two smart and shrewed Austrian investors, Georg Stumpf and Ronny Pecik took the helm at Oerlikon in 2005. The following year, they attempted in an unfriendly act to take over Saurer. Saurer’s board and management opposed and wanted a very dear price to permit finally a deal with Oerlikon Corporation in 2006 and finally reached a price of over CHF 1.8 billion, at that time Saurer delivered a turnover of 2.3 billion. In the course of the integration into Oerlikon, the name of Saurer almost disappeared, but interestingly enough, since the last European ITMA International Textile Machinery Exhibition in Barcelona (E) in September 2011 it came more to the surface again within the Oerlikon Textile Division.
The today’s company value is earmarked at CHF 650 million (far away from the original paid price, even after deducting Barmag’s and Neumag’s values), but there will have to be deducted debt and costs and actually Oerlikon Group CFO estimates that the entire deal will go “neutral” into the books when the deal is finalised, meaning after all competition authorities will give their go ahead.
The logic behind Oerlikon’s divestment
In 2011 and after some changes in the top management of Oerlikon Corporation, a disciplined execution of Operational Excellence was on, initiated by Michael Buschor at the helm of Oerlikon Group. He advocated early, that for the benefit of the Oerlikon Group, a reduction of textile exposure is necessary, as well as a divestment of the Solar Segment and the disposal of non-operating assets such as Pilatus Flugzeugwerke AG and Arbon Realty. All with the aim to reposition the balance sheet of Oerlikon Group and to shed the debt burden of the past.
According to Michael Buschor, a professional process for the divestment of Saurer, entailing also Schlafhorst and Zinser, as well as Oerlikon Textile Components portfolio with Accotex, Daytex, Fibrevision, Heberlein, Temco and Texparts. Usually, as also demonstrated by Swiss Rieter Textile Systems, the components business is highly profitable and therefore the disposal of this business came rather as a surprise in the proposed deal. But one should take into consideration that well breed Chinese investors know how to bargain and to balance their takeover offer.
When one notes the promotional effects of Oerlikon Textile at ITMA Barcelona (E) in September 2011 and in the aftermath, it was obvious that Oerlikon was making the Natural Fibre Business and Components fit for divestment. Already the step to relocate Oerlikon Textile’s headquarters from German Mönchengladbach to Shanghai has created many rumours, and now it seems that there was the same driver behind that what now has been announced. I remember to conclude a bet, at the time of the announcement of Shanghai to be the new headquarter, that this is only the beginning of selling out to Chinese investors. Rightly I was, because some other Oerlikon divestment went also to new Chinese ownership! For your personal information may serve, that I will receive a case of first class champagne to toss off my right assessment.
What entails the Saurer disposal further: manufacturing sites, patents, license agreements, service contracts and most of all, qualified staff of around 3800 employees. The turnover amounts to around CHF 1.00 billion(around EUR 850 million). There are joint-ventures in India and with Jinsheng in China.
Oerlikon will continue to operate the manmade business entailing Oerlikon Barmag and Oerlikon Neumag with five manufacturing sites in German Remscheid, Chemnitz and Neumünster and Chinese Wuxi and Suzhou and four sales and service locations in Beijing, Hong Kong, Mumbai (IND) and Charlotte, North Carolina (USA). The workforce will be reduced from actually 6300 to 2500 and thereof 1800 are working at the production sites.
How the Oerlikon Portfolio looked like prior to Saurer divestment and afterwards – the deal is to close in the third quarter of 2013 and will be presented on the Oerlikon books as discontinued operations – can be had from the tables below.
The next two charts provides the data on global mill consumption by technology and on final past and future final consumer demand
From these tables can be had that the manmade fibre and nonwoven sector, both offering a multitude of existing and new fibre applications, is earmarked to grow annually around 5 % to 7 % where as the general final textile demand is expected to grow 2% to 3 % yearly due to population and GDP growth and increasing textile consumption per capita in emerging countries.
After the proposed divestment Oerlikon Group will be more focused and profitable and with less debt burdens. These aspects have been already reflected in the price of the company’s shares, immediately after the announcement.
The buyer’s perspective
As we reported before – see news of December 4, 2012 – the Jinsheng Group is invested in four independent areas: CNC Machines (turnover around CNY 3 billion or around CHF 470 Million) with a 50 % investment in German EMAG Group (founded in 1867 as an iron foundry in Bautzen, Saxony and has been re-established in Esslingen, Baden-Württemberg in 1952. This company has been growing with a number of acquisitions and by enhancing its product palette. Around two and a half years ago, Jinsheng opted for a 50 % shareholder participation and in the ongoing year a production facility was opened in Chinese Jintan and Jinsheng Group is assisting the company’s business expansion in China and Asia, because before the company was rather present in European, North and South American markets . The other areas of activities are Cotton Spinning (turnover around CHF 300 million) with 300000 to 400000 installed spindles and a considerable cotton fibre recycling capacity, Real Estate (turnover around CHF 100 million and the company is acting as a mall operator and real estate developer in China) and Medical Testing (turnover about CHF 10 million).
The former CEO of the original Saurer Group and designated Chairman of the new Saurer Group, Heinrich Fischer explained his comeback with the close friendship he is entertaining for a long time with Pan Xueping and that he found it intriguing to return to a business he is profoundly familiar with and still knowing many people in the different companies.
He stated at a telephone conference also that the Saurer traditions will be honoured by the new ownership and continuity guaranteed after formal takeover for the companies and the collaborators, and that all contracts and agreements will be honoured. Also the management teams will remain and the CEO to be is Daniel Lippuner (44), former CEO of the Oerlikon Textile Component Business. In addition the new board of directors will consist of four European and three Chinese members also a sign that Swiss and European company traditions will subsist.
Fischer added that it will be the aim of the company to guarantee also continuity for customers and the strategic goal is underlined by the fact that the company is working for its customers by offering adequate machines of high innovation and quality for yarn manufacturing and developing such machinery in cooperation with its customers.
Fischer revealed also some details as to the person of the major shareholder of Jinsheng, Pan Xueping. He is Vice President of the Chinese Textile and Textile Machinery Association. Pan Xueping has a son who studies in the U.S.A. and according to Fischer, Pan Xujeping is a very open minded Chinese businessman. His group has been successfully partnering with Oerlikon Saurer in a joint-venture over eight years. The Jinsheng Group is active all over the world and all group companies are managed efficiently.
Fischer stated further that there was a formal bidding process arranged by Oerlikon Group and that Jinsheng and Pan Xueping initially were interested to buy the entire Oerlikon Textile Division, including the chemical fibre business, and that it was Oerlikon who wanted to keep the chemical fibre business. Fischer revealed additionally that there were several bidders interested in parts of the natural fibre business, and he claimed it a wise decision by Oerlikon to sell the sectors of natural fibre and textile component to one bidder and that has been Jinsheng.
Of course this change of ownership will have some consequences for competitors, especially for Swiss Rieter because their Textile Systems are foremost engaged in the natural fibre machinery business and offering four different types of spinning methods. Lately, Rieter has expanded into other fibre areas and with growing success. TextileFuture believes that the enormous marketing activities of Rieter, also with yarn manufacturers and towards the end consumer, will enhance the Rieter business. Rieter stands as well for outstanding yarn quality and machinery designed to deliver it efficiently and sustainable. Rieter has a very well reputed textile component business, and it is, according to customer’s statements, superior to the Oerlikon component business.
The business of Schlafhorst is based on its excellent position in OE rotor spinning, but rotor spinning might be challenged by other spinning methods on the longer run. There is also the winding sector. Zinser is active in ring spinning. In the spinning preparation there is to mention the Jinsheng brand, but all might not withstand the dominating Rieter activities in these sectors.
As to other bidders, TextileFuture believes that for some parts of Oerlikon Textile also Rieter might have been interested, as well as German Trützschler, but it would be difficult to have a confirmation after the outcome of the bidding process. If Trützschler would have taken over certain parts of Oerlikon textile this would have probably intimidated the position of Rieter.
On the other hand, Rieter and Trütschler will have to face the challenge that in the future they are confronted with a competitor who is partially European and Chinese. With the possibilities of Jinsheng Group, the battle of pricing might be reopened. On the other hand, we all know that the margins are not overwhelmingly rich in this cyclical business, and the Chinese owner to be is an investor who thinks also in terms of profit.
Anyhow, I personally believe that the consolidation of the business in question is not yet coming to an end and it will be interesting to watch the reaction of Rieter and Trütschler in the foreseeable future. I might add, that even all of this is the name of the game and the result of globalisation, but being a Swiss national, my heart is beating in this respect not only Swiss, but European and therefore, forgive, I have a split opinion on this deal, because it is a major ownership change, no matter if continuity is so far assured. The key question remains, how long will it take before some necessary changes and relocations of production do take place? Only time will tell!