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Veolia eyes Suez takeover

The French multi-utility is looking to buy Engie’s 29.9 per cent stake in rival Suez before launching a full takeover bid
September 3, 2020

Water, waste management and energy company Veolia Environnement (FR:VIE) is looking to acquire a 29.9 per cent stake in rival Suez (FR:SEV) for €2.9bn (£2.6bn). It is hoping to purchase the shares owned by French energy giant Engie (FR:ENGI) for €15.50 each, a 27 per cent premium to Suez’s closing share price the day before the announcement was made. The move is designed to lay the groundwork for a full takeover attempt, valuing Suez at around €9.7bn on the same terms.

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Engie announced in July that it would be focusing on its renewables and infrastructure assets, launching a strategic review of its client solutions business. When asked about a potential sale of its stake in Suez, chairman Jean-Pierre Clamadieu said at the time that “anything is open”. Veolia has taken that as an opportunity to pounce.

Should Engie accept this offer – which is valid until 30 September – Veolia intends to push ahead with a full merger with Suez within 12 to 18 months of receiving regulatory approval. The two companies reportedly discussed a tie-up back in 2012 but talks stumbled on how to address anti-competition concerns. This time around, Veolia has already secured a commitment from infrastructure management company Meridiam to purchase Suez’s French water business in an attempt to nip any potential antitrust issues in the bud.

But before Veolia gets ahead of itself, Suez doesn’t exactly seem flattered by the approach. The group says the unsolicited offer “carries great uncertainties” and suggests it could lead to lost opportunities and two years of operational disruption. While the proposal looks generous at first glance, that’s largely because Suez’s shares have struggled to recover from the ‘Corona crunch’. Comparing the offer to the share price from the beginning of the year, the premium almost halves to 14 per cent. Both Suez and Engie could therefore decide to push for a better deal.     

Veolia insists the tie-up will create value for shareholders from the first year of completion, predicting a double-digit boost to earnings per share once the two companies are fully integrated. It has identified €500m of costs that can be taken out over a four-year period. The group is sitting on more than €12bn of liquidity and is likely to finance the deal through a combination of bonds, hybrid debt and a potential equity raise. It says that following the transaction, debt would “remain under control”, although analysts believe that net debt is likely to climb above its target of being less than 3 times cash profits (Ebitda).