Veolia offers $3.5b for Suez stake

Bloomberg

Veolia Environnement SA offered 2.9 billion euros ($3.5 billion) for a 29.9% stake in French rival Suez SA, reviving an eight-year-old attempt to create a world leader in waste and water services.
Veolia offered to acquire the stake from energy giant Engie SA for 15.50 euros a share in cash, 27% more than where the target closed, Veolia said in a statement. Suez said its board will meet “shortly” to consider the unsolicited bid. If the offer is successful, Veolia will make an offer for the rest, using the price paid to Engie as a reference point, and taking into account
any subsequent significant events affecting Suez.
Suez shares rose as much as 20% and traded up 18% at 14.46 euros as of 9:45 a.m. in Paris, suggesting some investors doubt Veolia’s bid will be successful. Veolia shares rose 3.7% to 19.81 euros and Engie shares were trading up 6% at 11.81 euros.
The transaction — a full bid would value Suez stock at 9.7 billion euros — would create a company with combined revenue of more than 40 billion euros with plants treating everything from water to plastic and hazardous waste across the globe. It comes as utilities try to revive earnings dented by the coronavirus pandemic, and as governments push to spend more on environmental services in their economic stimulus packages.
“In a global market, size is critical to finance the equipment needed to fund the environmental transition of cities and industries,” Veolia Chief Executive Officer Antoine Frerot said in a conference call. “The complementarity of both groups is very strong.”
Engie said it will evaluate the offer and make a decision based on “the most attractive solution for its shareholders, while respecting all stakeholders, and after having weighing the industrial project’s quality.”
With a stake of 23.6% in Engie, the French government has a say in the outcome. The government will study the offer, consider Engie’s interests, the quality of the industrial project and make sure there are a multitude of players in the business of providing services to local governments, Finance Minister Bruno Le Maire said in a statement.
“Engie is likely to accept the offer in order to crystallise value and quickly proceed with its latest asset rotation,” Vincent Ayral, an analyst at JPMorgan Chase & Co, wrote in a note. “The strategic logic of a combination of Veolia and Suez is very strong and would create an uncontested world leader in environmental services at a time when the ecological transformation is accelerating.”
While the government made “no comments” when Veolia informed it of the plans, Frerot expressed confidence the bid would go through. Veolia would assess Engie’s decision if it were to reject the offer, the CEO said, saying it’s too early to speculate.
The companies tried and failed to cement a deal in 2012. Their unofficial talks foundered on antitrust issues over their French water businesses, government concerns about job losses, and disagreements among leaders of both companies.
Potentially heading off any antitrust concerns this time, French investment fund Meridiam has agreed to buy Suez’s French water business, Veolia said.
Other areas of competition include some waste management activities in France and a handful of cases outside France, according to Veolia. The company sees operating and purchasing synergies of 500 million euros in the deal.