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Schneider Electric offers $5 billion for Invensys; other suitors may be in the wings

Rueil Malmaison, France - Schneider Electric SA is in talks about a 3.3-billion-pound (US$5 billion) offer for Britain's Invensys Plc. Invensys said it disclosed the offer without Schneider's consent, adding that there is no guarantee a firm...


Rueil Malmaison, France – Schneider Electric SA is in talks about a 3.3-billion-pound (US$5 billion) offer for Britain’s Invensys Plc. Invensys said it disclosed the offer without Schneider’s consent, adding that there is no guarantee a firm offer will materialize.

France’s Schneider Electric is offering to pay 505 pence a share, comprising 319 pence in cash and 186 pence in new shares, London-based Invensys said yesterday. London-based Invensys indicated it’s likely to accept an offer at the proposed value, which is 15% higher than the closing share price on July 11, 2013. Schneider said that the talks are at an early stage.

Schneider Electric believes that the transaction, if consummated, would create an opportunity to realise significant cost savings through enhanced efficiencies as well as revenue synergies across Schneider Electric’s and Invensys’s established global customer bases.

Invensys shares rose as high as 513.50 pence on July 12, indicating that some investors expect a counterbid. Emerson Electric Co., a US maker of automation technology, approached the company last year about a possible deal. Additional potential suitors may include General Electric Co. and ABB, and others.

Remote monitoring

A takeover of Invensys would bring the buyer meters, process controls and safety systems that help to manage industrial process, machines, 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.

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 its pension liabilities, making it a more attractive takeover target.

Potential opposition

Emerson investors would probably oppose a counterbid for Invensys, according to an some analysts. 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.

Lower multiple

Before July 12, Invensys shares had gained 60% since Nov. 27, 2012, 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% of measurement instruments companies valued at more than $500 million, according to data compiled by Bloomberg.

Invensys shares rose as much as 17% in London and were up 15% on July 12, valuing the company at 3.3 billion pounds. Schneider dropped as much as 4.9% in Paris, giving it a market value of 31 billion euros.

Under UK takeover rules, Schneider has until August 8, 2013, to make a firm offer or to walk away. JPMorgan Chase & Co. and Barclays Plc are advising Invensys. Schneider is working with Deutsche Bank AG and Bank of America Corp.’s Merrill Lynch.

Harry Forbes is an analyst with the ARC Advisory Group. Bill Roebuck is the editor-in-chief of mromagazine.com.