UPDATE 3-Prysmian and Draka cable deal takes on No.1 Nexans

Mon Nov 22, 2010 5:44am EST

* Offer values Draka at 17 euros per share

* Has support of Draka's board and largest shareholder

* Expected to close in second quarter of 2011

* Draka shares up 9.2 pct, Prysmian drops 2.5 pct

(Adds analyst comment, background, updates shares)

By Greg Roumeliotis

AMSTERDAM, Nov 22 (Reuters) - Italy's Prysmian (PRY.MI) and Dutch peer Draka DRAK.AS agreed a takeover creating the world's largest cable maker by revenues, taking on market leader Nexans (NEXS.PA), whose earlier bid for Draka was rejected.

Draka has been in Prysmian's sights for some time. The world's second-largest cable maker made a failed bid for it in the summer of 2009. This was followed a month ago by a cash offer from French group Nexans, which Draka rejected.

The latest cash and share offer for Draka, valued at around 830 million euros, will create a leader in worldwide energy and telecom cables, particularly in high-tech segments, combining Prysmian's southern European and Draka's northern European presence, the companies said on Monday.

The market appeared to dismiss the chances of Nexans renewing its interest with a higher counterbid, with Draka shares climbing to just below the Prysmian offer price and Nexans shares also climbing. A spokeswoman for the French market leader declined to comment.

"We believe that Nexans will not be able to trump Prysmian's bid...Prysmian's 17.20 euros per share deal value is at or very near Draka's fair value," SNS Securities said in a note.

The Prysmian offer values Draka at 9.1 times EBITDA -- based on projected 2010 earnings before interest, tax, depreciation and amortisation (EBITDA) of 143 million euros -- compared to the Nexans offer, which was at an 8.3 time multiple.

Draka shares jumped 9.2 percent to a record high of 16.9 euros by 1033 GMT, just shy of the 17 euros per share offer price. Draka's shares have risen 63 percent since late August.

Prysmian's shares fell 2.5 percent to 12.7 euros, after dropping as low as 12.37 euros. Meanwhile Nexans shares rose by 1.96 percent to 53.18 euros.

Prysmian's offer consists of 8.60 euros in cash and 0.6595 Prysmian shares for every Draka ordinary share, an 11.4 percent premium over Draka's closing price on Friday. The offer gives Draka an enterprise value of 1.3 billion euros.

The deal is expected to boost earnings per share from 2011 and yield 100 million euros of annual pre-tax synergies within three years, the two companies said.

Integration costs are estimated at 170 million euros over three years, as Prysmian -- unlike Nexans -- does not intend to break up Draka. Nexans had said it would like to sell off Draka's telecoms activities.

The deal would give Prysmian access to Draka's specialist businesses such as elevator and automotive cables, where it is a market leader, as well as its optical fibre operations, where it is No.2 in the world and a market leader in China. Draka is the principal automotive cable supplier of Airbus EAD.PA. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

For a background story see [ID:nLDE69J27O] ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

SMOOTH COMBINATION

Draka said the offer had the unanimous recommendation of its board and the irrevocable commitment of its biggest shareholder, Flint Beheer, which has a 48.5 percent stake. The deal is expected to close in the second quarter of 2011, it added.

Flint is a vehicle of the Fentener van Vlissingen family which has three members in the top-25 richest Dutch people -- ahead of the royal family -- and which acquired its initial stake when Draka was spun off from Philips (PHG.AS) in 1986.

However, Draka could revoke its conditional agreement if another buyer makes an offer than exceeds the value of Prysmian's bid by 15 percent, it said. If that were to happen, Prysmian will be given a chance to revise its offer, it said. The deal includes a 12.5 million euro break fee.

Prysmian's offer is expected to be launched in the first quarter of 2011 and is subject to a minimum acceptance threshold of 85 percent. It will be financed with existing cash on its balance sheet, committed credit lines and the issue of 32 million new Prysmian shares, it said.

Draka shareholders will hold about 15 percent in Prysmian after the deal, the two companies said.

Goldman Sachs, Leonardo & Co, Mediobanca and Freshfields Bruckhaus Deringer are advising Prysmian, while JP Morgan and Allen & Overy are advising Draka. BNP Paribas and Credit Agricole advised Nexans on its bid for Draka. (Editing by Alexander Smith)

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