The French-based utility company Suez said on Monday that facing Veolia’s unsolicited offer carried great uncertainties, but that its Board of Directors reiterated its confidence in the company’s strategic project “SUEZ 2030”.
On Sunday, the French transnational firm Veolia submitted a takeover bid for 29.9% of French gas and power utility Engie's capital in Suez for 2.9 billion euros ($3.45 billion). Veolia said that this move would enable it to: “build the French world champion in ecological transformation, while accelerating international development and strengthening the new entity's capacity for innovation.”
In a press release on Monday Suez responded: “As environmental urgency is key to the future of our citizens, Veolia's offer raises concerns about the future of water treatment and distribution activities in France, as well as the level of employment given the amount of synergies announced by Veolia.
The statement continued: “The strategy proposed by Veolia would generate disynergies and loss of opportunity in France and abroad. In addition, the complexity of the chosen process would lead to two years of operational disruption whilst, in a post-Covid context, the teams are focused on implementing their strategic plan.”
If Veolia – which has said it wished to finance the offer in cash - is successful, it will launch a takeover bid for 100% of the group, which according to Reuters would give Suez an enterprise value, which includes debt, of around 20 billion euros ($23.8 billion).
Though the two French companies’ business is to a great extent complementary in the international arena, the overlap in France has been an issue before. In 2012, informal tie-up talks crumbled because of anti-trust concerns.
Veolia said on Sunday that it had identified the limited antitrust issues that such a transaction would entail and had anticipated remedies by identifying an acquirer for Suez’s French water activities, Meridiam, a French infrastructure management company, capable of preserving competition and employment.
On Monday, Suez shares rose 18.5%, to 14.5 euros, one euro below the offer. Meanwhile, Veolia's shares rose by 5.73%, to 20.2 euros; and Engie's shares rose by 4.67%.
Although the COVID-19 pandemic had paralyzed the process, the takeover bid will delay it even further because of the duty of passivity. If the takeover of Suez by Veolia is successful, it will be up to Veolia to decide on the potential sale of Agbar.
At the beginning of July, Bertrand Camus, CEO of Suez, said to Bloomberg that the firm had no plans to sell Agbar at the moment and that an announcement of a possible divestment would be made during the second half of 2020.
In July, Camus also predicted an improvement in the water business for the second half of 2021 after the decline caused by the health crisis, which would have led to the postponement of the sale of Agbar. Advised by Rothschild and Société Générale, Suez had been preparing to begin the process of selling Agbar on June 25th, with the intention of complying with the request that the activist fund Amber Capital proposed last year to improve its profitability levels with the arrival of Bernard Camus as new CEO of Suez.
The sale of 100% of Agbar is valued at 3 billion by the activist fund Amber Capital (12 times ebitda). A large part of the water company's value is currently held by Aguas Andinas - the Chilean subsidiary - and the price of the potential divestment would therefore depend on whether it is included.
In a letter sent to Suez last year, Amber Capital said that Agbar had reached a level of maturity that suggested a limited industrial angle for the French company to exploit in the future. The sale of Aguas de Barcelona would therefore be a great opportunity to reposition the company and increase its profitability ratios and capitalisation.