MILAN A source close to Italy's Prysmian (PRY.MI), the world's biggest cable-maker, and officials at France's Nexans (NEXS.PA), its loss-making rival, on Friday dismissed a report they were looking at a possible merger.
Italian daily La Repubblica reported, without citing sources, that Prysmian Chief Executive Valerio Battista had raised the possibility of a tie-up at a closed-door lunch at Italian investment bank Mediobanca (MDBI.MI).
Speculation about a possible combination comes before a shareholder meeting next week called to vote on a resolution by activist investor Amber Capital to oust Nexans Chairman and Chief Executive Frederic Vincent from the board.
A merger between the two groups would face regulatory and political hurdles, however, and analysts saw it as unlikely.
Prysmian said it does not comment on media speculation, but a source close to the Italian company said it was not studying any deal involving Nexans.
Separately, Nexans said in a statement it had not initiated any contact and had no further comment.
Amber, the fourth-largest investor in Nexans with a 5.5 percent stake, is protesting against what it sees as poor performance since Vincent took the helm in 2009. An Amber official has said the performance gap between Nexans and Prysmian "has been widening year after year".
Prysmian and Nexans have similar revenue, but the market value of the French company is much smaller. That could make Nexans an attractive target for Prysmian CEO Battista, who has a good track record in integrating companies.
By 8:48 am ET (1248 GMT), Prysmian shares were down 4 percent, adding to heavy losses on Thursday, when the company said it could not rule out further losses due to technical problems at its Western Link high-voltage project in Britain.
Nexans shares in Paris were little changed.
According to the Italian newspaper, Battista believed a deal would first have to be solicited by Nexans, in which sovereign wealth fund Bpifrance holds a stake.
A tie-up would trigger antitrust problems, especially in the business of submarine cables. It would involve significant industrial overlaps in central and southern Europe and in South America.
A Milan analyst said the French government was unlikely to let a foreign group take control of Nexans, which is undergoing a tough restructuring. The company had to raise new share capital in October due to a lack of growth in Europe and industry overcapacity.
Prysmian has said it is open to growth through acquisitions. It overtook Nexans to become world leader in 2011 when it bought rival Draka for 1.3 billion euros ($1.8 billion). ($1 = 0.7214 euro)