PARIS -- Schneider Electric SA agreed to buy the U.K.’s Invensys Plc for 3.4 billion pounds ($5.2 billion) to add software and control systems used by chemicals makers, oil refineries, and mining companies.
The world’s biggest maker of low- and medium-voltage of power gear is offering the equivalent of 502 pence a share, with shareholders able to alter the proportions of cash and shares they receive, said Schneider, based in Rueil-Malmaison near Paris. Invensys rose as high as 502.5 pence, and traded 2.1 percent higher at 501.5 pence as of 9:38 a.m. in London.
The purchase marks Schneider’s biggest takeover since the $6.1 billion purchase of West Kingston-based American Power Conversion Corp. in 2006 as it looks to fend off competition from Emerson Electric Co. and ABB Ltd. of Switzerland. Invensys will supplement its factory automation offering as Schneider faces a slump in European construction, with the French company earmarking 400 million euros ($530 million) in annual revenue synergies by 2018 that would boost earnings by 65 million euros.
“Both the sales and cost savings are punchy,” said Jonathan Mounsey, a London-based analyst at Exane BNP Paribas. “As there doesn’t appear to be a counterbidder, I don’t think Invensys shareholders would be willing to play with that stick of dynamite. Where would they go if it fell through?”
Schneider shares rose 3.3 percent to 59.95 euros at 9:47 a.m. in Paris. It reported first-half net income fell to 831 million euros from 876 million euros. Analysts estimated 837 million euros, on average.
Schneider’s offer comprises 372 pence in cash and 0.025955 in new Schneider shares per Invensys shares. It sees about 140 million euros in annual cost savings by 2016, and about 80 million euros in annual tax savings over the first five years.
The price being paid is 11.9 times Invensys’s earnings before interest, taxes, depreciation and amortization of 202 million pounds, with an enterprise value of 2.41 billion pounds, including net cash of 581 million pounds and 400 million euros in tax assets, Schneider said. European takeovers in the electrical equipment industry have attracted an average multiple of 11.1 times over the past five years, according to Bloomberg data.
Exane’s Mounsey said he’s surprised that a rival suitor didn’t emerge based on Schneider’s valuation of Invensys, formed through a purchase of BTR Plc by Siebe Plc in 1999.
“It’s a mystery, you would have argued an electrical company could have paid more than this,” Mounsey said.
Deutsche Bank, Morgan Stanley, BNP Paribas and Bank of America Merrill Lynch advised the acquirer. Invensys was advised by Barclays and JP Morgan Cazenove.
End of an era
The offer ends more than a decade of speculation surrounding Invensys, with interest from industrial groups including Siemens AG. In the end, the German company opted to buy just Invensys’ rail-software business for 1.74 billion pounds at the end of last year.
“Invensys died effectively a decade ago,” said Mounsey of Exane. “This has been a long protracted how-do-we-squeeze-out what’s left.”
The two companies announced they were in talks on July 12.
The London-based business is a leader in industrial operational efficiency and will be a channel for the rest of Schneider’s portfolio, Chief Financial Officer Emmanuel Babeau said on a call. The industry automation market is estimated to continue to grow at a mid-single digit pace, he said.
Management will review the future of Invensys’s appliance- controls unit supplying manufacturers such as Whirlpool Corp., a business which it doesn’t know so well, Babeau said.
Total integration costs of Invensys will be about 150 million euros over 2014 and 2015, and acquisition costs amount about 60 million euros, Schneider said. It will credit lines and a sale of bonds to help finance the transaction.
Standard & Poor’s said on July 17 it may cut Schneider’s A- credit rating as the company takes on more debt to fund part of the acquisition. The transaction “would put some pressure” on Schneider’s credit metrics, Moody’s Investors Service said the same day.