The Japanese conglomerate Toshiba bought a 60 percent stake in Landis+Gyr for $2.3 billion in 2011. Earlier this year, the industrial, electronics and energy giant reportedly started seeking out a buyer for the Swiss smart metering company, to help Toshiba cover losses from its Westinghouse nuclear power plant business.
Now it's seeking the public option.
Landis+Gyr announced this week that it’s planning an initial public offering on the SIX Swiss stock exchange, in which Toshiba and 40 percent stakeholder Innovation Corporation Network of Japan will sell all of their shares in the company. While CEO Richard Mora said in a Monday conference call that a sale to another company is still on the table, the Financial Times and Reuters report that an IPO is the preferred option at this point, with particular support for the idea from Landis+Gyr executives.
That’s not surprising, given Landis+Gyr’s efforts to publicize its relative financial health compared to Toshiba, since the parent company's accounting scandal and the Westinghouse bankruptcy crisis hit. Back in February, then-CEO Andreas Umbach said the company was a “profitable, fully independent operation,” with expectations of $1.64 billion in revenues for the 2016-2017 fiscal year, up 5 percent from the previous year.
In March, Landis+Gyr reported worldwide sales of $1.569 billion in its 2015-2016 fiscal year, a 3 percent rise from the previous year. Reuters reports the company’s net loss widened to $62.1 million for the recently completed fiscal year, largely driven by weakness in European markets, where big national smart meter rollouts have faced continuing delays.
At the same time, Landis+Gyr has distinguished itself by winning a majority of the mega-contracts for smart meters over the past five years or so, including 16 million meters for British Gas, and, in partnership with Toshiba, 27 million meters with Tokyo Electric Power. Recent wins include one of Poland’s largest distribution system operators, Seattle City Light, Westar Energy and Mexico’s CFE.
Landis+Gyr has operated as an “independent growth platform" since its 2011 acquisition, with its own governance body, audit and risk committee and separate financial reporting. While it has worked in conjunction with Toshiba’s IT services arm on its Tokyo advanced metering infrastructure (AMI) project, most of its contracts are largely independent of its owner.
An IPO may be Toshiba’s best hope of recovering its initial $2.3 billion investment in the company. Reuters reported that Toshiba rejected a $2 billion offer from CVC Capital Partners and Hitachi earlier this year, and has since narrowed its list of prospective buyers to Goldman Sachs' private equity arm and Canada's Onex Corp.
Mora declined to say how much the company hopes to raise in its IPO in Monday's conference call, but described its post-IPO shareholder return policy as “attractive and sustainable,” with a dividend policy that would pay at least $70 million in 2018 and 60 percent of free cash flow after that, Reuters reported.
As for Landis+Gyr’s value as a publicly traded company, it’s worth comparing it to its main rivals in the global AMI industry -- Itron, Silver Spring Networks, Elster and Sensus.
Of the two publicly traded companies, both U.S.-based, Itron has a market capitalization of $2.6 billion, while Silver Spring Networks’s market cap is $549 million -- although it's worth noting that Silver Spring, unlike the rest of its rivals, doesn't make its own meters, reducing its capitalization as well as its production costs.
The remaining two are privately held, with Germany’s Elster having been acquired by Honeywell for $5 billion in 2015, and U.S.-based Sensus bought by water treatment company Xylem for $1.7 billion last year. It's highly doubtful that Landis+Gyr will achieve Elster's valuation -- but there's no doubt that company executives are hoping to raise more than what Xylem paid for Sensus.