Schneider to buy Invensys for US$5.2bil

Schneider Electric SA agreed to the UK’s Invensys Plc for £3.4bil (US$5.2bil) 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% higher at 501.5 pence as of 9:38 am in London.

The purchase marks Schneider’s biggest takeover since the US$6.1bil purchase of 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 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 Londonbased 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% to 59.95 euros at 9:47 am 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 amortisation of 202 million pounds, with an entreprise value of £2.41bil, including net cash of £581mil 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. — Bloomberg