Kleinfeld comes out fighting at Siemens (FT)

Kleinfeld comes out fighting at Siemens
By Ivar Simensen in Frankfurt and Richard Milne in London

Published: April 25 2007 10:51 | Last updated: April 25 2007 10:51

Klaus Kleinfeld, chief executive of Siemens, came out fighting for his job on Wednesday as the German industrial conglomerate announced second-quarter results that beat market expectations.

The early release of strong results added pressure on Mr Kleinfeld’s supervisory board, which is meeting later on Wednesday to decide on his future at the company.

“He wants to show the [supervisory] board that he has been successful in raising returns. The figures were expected to be good and they clearly are,” said James Stettler, Siemens analyst at Dresdner Kleinwort.

Siemens late on Tuesday reported a 10 per cent rise in revenues to €20.63bn ($28bn) and a 49 per cent rise in group operating profits to €1.96bn. Earnings before interest and tax were about 14 per cent ahead of consensus estimates, said Dresdner Kleinwort.

Siemens was originally scheduled to report second quarter earnings on Thursday, the day after the supervisory board meeting.

The news sent shares in Siemens up 1.4 per cent to €90.45, reversing some of Tuesday’s losses when investors fretted about the future of Siemens if it lost its chief executive, who has been the driving force behind the company’s restructuring.

“A lot of shareholders have waited so long for this company to start to perform. If job security in Germany again becomes priority number one, it is potentially disastrous,” said Mr Stettler, adding: “If Kleinfeld is clean, he should stay in his job.”

Mr Kleinfeld has come under severe pressure after several supervisory board members, including its incoming chairman, advocated a ”clean start” at the company, which has been rattled by two corruption scandals.

Heinrich von Pierer, Mr Kleinfeld’s long-running predecessor as chief executive, last week resigned as chairman.

Investors on Tuesday expressed concern that ejecting Mr Kleinfeld could signal the end of the restructuring at the group.

“This would be the investors’ worst nightmare,” said Ben Uglow, analyst at Morgan Stanley, on Tuesday, when shares in Siemens fell nearly 3 per cent. “This would be it for Siemens and the capital market,” said Mr Uglow.

Analysts spoke of several big shareholders thinking about selling large positions.

Henning Gebhardt, head of German equities at DWS, Germany’s largest fund manager, said: “This concerns us a lot. We would not be happy about this.”

Mr Kleinfeld’s contract expires in September, and he was widely expected to have it renewed for another five years at today’s supervisory board meeting.

But a person close to the supervisory board said a ”handful” of members, including Gerhard Cromme, who takes over as chairman today, and Josef Ackermann, chief executive of Deutsche Bank and a Siemens non-executive, were discussing whether Siemens needed a new chief executive.

Mr Ackermann and Mr Cromme, who wants to remain chairman after his new interim contract expires in January, were said to be looking for allies on the board.

The powerful IG Metall union, which is strongly represented on the board and has recently clashed with Mr Kleinfeld over the sale of the group’s failing mobile handsets division to Taiwan’s BenQ and the upcoming spin-off of automotive business VDO, has not backed the chief executive.

However, one official noted that “any new guy would be unlikely to act any differently” when it comes to restructuring the group.

People close to Siemens’ supervisory board said it could still decide to postpone the decision over renewing Mr Kleinfeld’s contract or make it a short-term contract. ”The board wants to have a clear picture of what has happened before making a decision on extending the contract,” said one.

However, either a delay or a shorter contract would be seen as very damaging to Mr Kleinfeld’s position. German press reports on Wednesday suggested Mr Kleinfeld would resign if the board offered him anything but a new five-year contract.

Wolfgang Reitzle, chief executive of Linde, the industrial gases group, has been touted as a possible successor to Mr Kleinfeld.

However, a Linde spokesman said on Tuesday: ”You can be certain that Reitzle will remain CEO of Linde.”

Additional reporting by Gerrit Wiesmann in Frankfurt

Background

German police raided a number of Siemens’ offices in November as prosecutors suspected employees used fake consulting contracts to divert company funds in order to bribe potential clients abroad. A month later, Siemens said it had uncovered suspicious payments totalling €426m ($580m) that stretched back into the 1990s. In March, the company was rocked by another probe into payments to an employer-friendly labour representative. Chief executive Klaus Kleinfeld and chairman Heinrich von Pierer denied any wrongdoing in both cases and instigated measures to investigate and fight misconduct. But Mr von Pierer’s tenure as chief executive from 1992 to 2005 spanned the years in which the alleged bribery took place. Under pressure from fellow non-executives, he resigned as chairman of Siemens supervisory board last Thursday.

Copyright The Financial Times Limited 2007