Invensys/Schneider and those share maths pundits

The stock market valuations and ratios are fine, but being a basic maths guy let’s look at the Invensys/Schneider deal, quoted as a higher than average 22.4 P/E ratio for Schneider.

The proposed deal is worth GBP3.3Bn. But for that Schneider buy a company with a minimum of GBP0.6Bn in cash (see below), so it actually costs them GBP2.7Bn. Schneider had GBP2.4Bn of cash at the end of 2012, so they have the resources. But the P/E ratio. If it is 22.4 based on a price of 3.3Bn, the actual P/E ratio after deducting the cash resources is 18.4, which is well below the 20 times average earnings Schneider has paid for deals since 2005 (according to BNP Paribas).

So Schneider has a fairly standard deal, in their terms, with some upside if needed. Plus from the European view, Invensys fits well with Schneider, having a significant European, and French, presence.

Somehow the Schneider/Invensys combination makes sense: what would be more interesting would be to hear what Schneider plan to do with the whole new horizon that Invensys would open up for them.

Schneider statement:

The Schneider website contained the following paragraph explaining their rationale:

Schneider Electric believes that the strategic and financial rationale for this transaction, if consummated, is compelling. Schneider Electric is considering making an offer for Invensys in order to increase its focus on the attractive industry automation sector. The enlarged group would significantly expand its access to key electro-intensive segments where Schneider Electric offers leading low and medium voltage as well as energy management solutions. It would also gain a leading position in the fast growing software business for industrial operational efficiency.

INSIDER Newsletter Comment:

So the statement follows the Invensys view of their future growth potential, in terms of Energy Controls on the one hand, and Software, for operational efficiency, on the other.

Possibly, in the middle, there is InFusion, and Archestra, able to sit in the plant management and operational efficiency space, and get closer to the customers – whoever has supplied the basic automation systems. Who is going to recognize this and take it on, or is it still outside the accountant’s horizons?

#######

* For Schneider comment in the INSIDER Newsletter see January 2013 page 7. http://www.iainsider.co.uk

* For the last INSIDER valuation of Invensys, post Rail sale, see the newsletter of December 2012, page 6: the price quoted there was GBP3Bn.

+PLUS there are lots of cash piles stashed away in the Invensys future, not the least of which must be the payments due from the Chinese nuclear power plant orders, due for realization this year. Then, for the future, what about the pension fund “just in case” GBP225m reservoir trust bank accounts? They should hopefully realize a few bonus GBP in 5-10 years, one way or another.

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