Schneider approach Invensys

All I do is take a Friday off to go to an air display, and look what the Guardian comes up with:

Shares in the UK engineering group Invensys have surged 16% on news of a £3.3bn takeover approach from France’s Schneider Electric.

The French power equipment maker said it was in early talks to buy Invensys to boost its industry automation business. Invensys said it was likely to recommend Schneider’s offer of 505p a share, which would represent a 15% premium to the stock’s Thursday close on the London Stock Exchange. The shares reached 511p in early trading on Friday.

Schneider has indicated it would pay 319p in cash and 186p in new Schneider shares, Invensys said.

Schneider said it had until 8 August to say whether it intended to make a firm offer or walk away under UK rules. This could be extended with UK takeover panel consent. The group, whose products help utilities distribute electricity and which makes automation systems for the car and water treatment industries, said last summer that it planned to step up acquisitions to boost sales and tap new markets.

Schneider had €2.8bn (£2.4bn) of operating cash flow at the end of 2012.

Invensys emerged as a potential takeover target earlier this year on speculation that the sale of its rail business could lead to substantial net cash and raise interest from suitors.

Société Générale analysts said in late April that Invensys could be valued at 460p a share following the disposal.

The Wall Street Journal provided a very perspicacious report:

Schneider Switches on for Invensys

Schneider Electric has stirred Europe’s mergers and acquisitions market from its slumbers, with an indicative £3.3 billion ($5 billion) cash-and-shares offer for the U.K.’s Invensys . In truth, Invensys—a specialist in providing automated systems for large-scale industrial processes—has looked ripe for the picking since it last year sold its rail division to Siemens for £1.7 billion. That helped it reduce a pension deficit that had put off previous potential buyers. Invensys’s share price rose 16% on Friday, to just above the £5.05 per share offer price.

The question is whether Schneider’s bid will be generous enough to see off Invensys’ other potential suitors.

Invensys looks a good strategic fit for Schneider, even though adding Invensys—worth around 15% of Schneider’s current market value—wouldn’t be transformational. The French electrical equipment maker has lagged its peers in the automated process business, with a 4% global market share compared to Siemens’ 21%. Whereas Schneider operates more in what’s called “discrete automation,” selling products for specialized manufacturing processes, Invensys will give it more exposure to larger industrial clients like oil and gas or companies or nuclear plant operators.

Moreover, Invensys has scarcity value: The only similar asset Schneider could buy is Japan’s Yokogawa Electric . That could be why Schneider’s price looks high. At 22.4 times Invensys’ expected earnings before interest and tax last year, it’s above the 20 times average Schneider has paid in deals since 2005, according to BNP Paribas . It’s also above the 17 times median paid in deals in the capital goods sector over the past year, according to a person familiar with the deal.

Schneider, which has only said it’s in early discussions with Invensys, hasn’t laid out any cost savings that might justify the premium it is paying. It might be more concerned to knock out potential competitors: Emerson Electric, which discussed a deal with Invensys last summer could be interested, while the likes of General Electricand ABB have been rumored bidders in the past. This deal may not herald a slew of M&A activity in Europe. But for Invensys investors, it could prove to be a profitable summer.

Invensys said in May it planned to return £625m to shareholders after selling Invensys Rail for £1.74bn to Siemens.

Schneider said on Thursday that a takeover of Invensys would lead to “significant cost savings” and “revenue synergies”.

Invensys provides software, systems and controls to clients ranging from oil refineries and power stations to mining companies and appliance manufacturers, to help monitor, control and automate products and processes.

Its Industrial Automation unit supplies control systems, safety systems and instrumentation to customers operating oil refineries, nuclear power stations and petrochemical plants.

Invensys said its advisers were Barclays and JP Morgan Cazenove.

Reuters then added:

The prospect of a bid battle powered Invensys shares to a ten-year high on Friday, after the British engineer said it had received a 3.3 billion pound ($5 billion) takeover proposal fromFrance‘s Schneider Electric.

Invensys said Schneider, which confirmed only that it had made a proposal, was considering an offer of 505 pence a share in cash and stock, 15 percent above Invensys’ closing price on Thursday.

A deal would allow Schneider to tap the British firm’s strength in industrial automation, which is enjoying rapid growth in the oil, gas, petrochemicals and utilities sectors.

However, Invensys shares jumped as high as 513.5 pence on speculation the proposal could flush out other bidders.

U.S. group Emerson Electric was in talks to buy Invensys a year ago, while a report in May 2012 said Germany‘s Siemens, Switzerland’s ABB and U.S. giant General Electric had also made informal contact.

Those companies either declined to comment, or could not immediately be reached for comment.

“The most obvious candidate is Emerson, which was in related talks with Invensys back in June 2012,” Societe Generale analysts said.

If a bid battle for Invensys breaks out, the share price could go even higher, said Neil Veitch, a fund manager at SVM Asset Management, which holds Invensys stock.

However, a banker active in the sector said Schneider would be tough to beat. “You need to find someone willing to table an all cash bid,” the banker said.

Invensys said it was likely to recommend an offer at 505 pence a share.

“Schneider is finishing its due diligence. There is a deal, there is a handshake,” a source familiar with the matter said, speaking on condition of anonymity.

He said he expected Emerson to look at Invensys because there were few companies like it available to buy. But Emerson could be put off by the price.

“I don’t think there is anyone else out there,” he said.


Morgan Stanley analysts said the price proposed by Schneider was “fair and reasonable”, valuing the British company at around 22 times earnings forecasts for 2014. That compares with an average multiple of 13 times for Britain’s industrial machinery and equipment sector, according to Thomson Reuters data.

They said a deal would boost Schneider’s share of the industrial automation market from just over 4 percent to around 6-7 percent, compared with world No.1 Siemens’ 21 percent.

Analysts said a deal would also create an opportunity for Schneider to sell its energy management products to Invensys’ customers in the oil, gas and petrochemicals sectors.

At 1503 GMT, Invensys shares were up 15.4 percent at 508 pence. Schneider’s were down 3.9 percent at 55.81 euros on concerns it could get sucked into a bid battle and the cost of insuring its debt against default jumped on expectations it would raise new debt to fund a deal.

Invensys has long been mooted as a takeover target in an industry dominated by larger rivals, particularly after the disposal of its rail unit last year, which enabled it to strengthen its balance sheet and pension fund.

The British firm said Schneider’s takeover proposal comprised 319 pence in cash and 186 pence in new shares for each Invensys share.

The French group, which said last summer it planned to step up acquisitions, has until Aug. 8 to say whether it intends to make a firm offer or walk away under UK takeover rules.

Activist investor ValueAct Capital Management has been building up a stake in Invensys. It holds 8.16 percent of the stock, according to Thomson Reuters data.

Barclays and JP Morgan Cazenove are advising Invensys, while Deutsche Bank and BofA Merrill Lynch are working for Schneider.

($1 = 0.6615 British pounds)

($1 = 0.7668 euros) also added their comments as follows, with a lot of Schneider background:

Schneider Electric Offers $5 Billion for Invensys Takeover

By Francois de Beaupuy

Schneider Electric SA (SU), (SU) the world’s largest maker of low- and medium-voltage equipment, is in talks about a 3.3 billion-pound ($5 billion) offer for Britain’s Invensys Plc (ISYS)(ISYS) to add industrial software and control systems.

France’s Schneider is offering to pay 505 pence a share, comprising 319 pence in cash and 186 pence in new shares, London-based Invensys said yesterday. Invensys indicated it’s likely to accept an offer at the proposed value, which is 15 percent higher than the closing share price yesterday. Schneider said that the talks are at an early stage.

A logo sits on a sign outside the offices of Invensys Plc in Crawley. Photographer: Chris Ratcliffe/Bloomberg

Invensys shares rose as high as 513.50 pence today, indicating that some investors expect a counterbid. Emerson Electric Co. (EMR), a U.S. maker of technology for refrigerators and air conditioners, approached the company last year about a possible deal. Other potential suitors may include General Electric Co. and ABB Ltd., according to Royal Bank of Canada.

“Emerson is perhaps better placed than Schneider to offer a higher bid given the greater synergy potential, which we estimate at 5 percent of sales versus 4 percent at Schneider,” said Societe Generale analyst Alasdair Leslie. “Invensys remains a highly prized asset for Emerson,” given the size of its process automation offerings and a “highly complementary” product portfolio, he said.

Remote Monitoring

A takeover of Invensys would bring the buyer meters, controls and safety systems that help to manage heating, temperature and remote monitoring applications. The products of the British company, which operates in more than 180 countries and employs more than 16,500 people, are used by a wide range of clients, from oil refineries and power stations to mining companies and appliance manufacturers.

David Farr, chief executive officer of St. Louis-based Emerson, said in September that the company had considered a deal with Invensys on and off for 15 years and would continue to look at the company’s process-automation business.

At the time of the talks between Invensys and Emerson last year, the British company was grappling with pension liabilities, which amounted to 490 million pounds at the end of September. Invensys then sold its railroad unit in May to Germany’s Siemens AG for 1.74 billion pounds and also reduced pension liabilities, making it more attractive as a takeover target.

Potential Opposition

Some Emerson investors would probably oppose a counterbid for Invensys,, said Christian Mayes, an analyst with Edward Jones & Co. in Des Pere, Missouri.

“Emerson investors still have a bad taste in their mouth from when Emerson got into that bidding war for Chloride just a few years ago,” he said. “Hopefully, management is looking to use their capital a little bit more wisely and not get sucked into a bidding war.”

In 2010, Emerson beat Zurich-based ABB in a competition to acquire London-based Chloride Group Plc, Britain’s largest maker of gear to protect against power failures, pushing up the final price. Emerson purchased Chloride right before Europe went into recession, making it difficult for Emerson to make the acquisition work, Mayes said.

Representatives for Emerson, ABB and GE declined to comment.

Lower Multiple

Before today, Invensys shares had gained 60 percent since Nov. 27, the day before it announced the Siemens deal. Still, the company had been trading at a multiple of 1.5 times its projected 2013 revenue, lower than 65 percent of measurement instruments companies valued at more than $500 million, according to data compiled by Bloomberg.

“The strategic and financial rationale for this transaction, if consummated, is compelling,” saidRueil-Malmaison-based Schneider. A deal would help to cut costs between the two companies and give Schneider access to “key electro-intensive segments” as well as energy management offerings and “the fast-growing software business for industrial operational efficiency.”

Invensys shares rose as much as 17 percent in London today and were up 15 percent as of 4:10 p.m., valuing the company at 3.3 billion pounds. Schneider dropped as much as 4.9 percent in Paris, giving it a market value of 31 billion euros.

Invensys said it disclosed the offer without Schneider’s consent, adding that there’s no guarantee a firm offer will materialize. Under U.K. takeover rules, Schneider has until Aug. 8 to make a firm offer or to walk away. JPMorgan Chase & Co. (JPM) and Barclays Plc (BARC) are advising Invensys. Schneider is working with Deutsche Bank AG and Bank of America Corp.’s Merrill Lynch.

Ratings Risk

Schneider has an A3 rating from Moody’s Investors Service, and an A- from Standard & Poor’s, both with a stable outlook, and an takeover of Invensys would put pressure on the company’s debt profile, said Nicolas Hue de la Colombe, a credit analyst at Credit Agricole in Paris.

“With about 2.3 billion euros of the transaction in cash, the A- and A3 ratings of Schneider are potentially at risk,” he said. “We had earmarked a leeway of about 1 billion euros in acquisitions for Schneider to be able to keep its A- rating.”

Since Jean-Pascal Tricoire was named as Schneider CEO in May 2006, he has bought dozens of companies, spending more than 11.6 billion euros and doubling Schneider’s revenue to 24 billion euros. Although the company’s power solutions push eroded margins — because such sales outgrew more profitable products like switchgears — the CEO is eyeing purchases that will make the company’s foray into services more lucrative.

‘Pockets of Software’

Tricoire said in February the company may buy “pockets of software and know-how” if needed, and still favors “bolt-on” deals.

Schneider spent just 242 million euros on acquisitions in 2012 compared with 2.87 billion euros in 2011, when it bought companies such as Spanish software company Telvent GIT SA, Chinese energy-savings drives maker Leader Harvest Power Technologies, and Indian maker of inverters and power-storage systems Luminous Power Technologies to expand in emerging markets and broaden power-management systems.

“It’s going to be interesting to see if others come in here, whether it’s peers like Emerson or someone else,” Sachin Shah, a special situations merger arbitrage strategist at Albert Fried & Co in New York, said by telephone. “It’s possible.”

To contact the reporter on this story: Francois de Beaupuy in Paris

To contact the editor responsible for this story: Simon Thiel at


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