* Schneider serious about Tyco, tapped lenders--sources
* Lenders skeptical about fit, size of bank financing
* Source said on Tuesday early talks had been held
* Tyco shares down 0.9 pct; Schneider down 0.1 pct
(Rewrites first paragraph; adds analyst comment; updates
By Nick Zieminski and Blaise Robinson
NEW YORK/PARIS, April 13 France's Schneider
Electric SA (SCHN.PA) is serious about buying Tyco
International Ltd TYC.N, but lenders needed to finance a
transaction above $30 billion are skeptical a deal for the U.S.
conglomerate can be pulled off.
Schneider has approached lenders, including French banks,
about financing a potential takeover, two people familiar with
the matter said. The approach is preliminary and the French
company has yet to secure commitment letters from banks, one
But potential lenders questioned if the proposed deal --
which could range between $30 billion and $35 billion -- will
be completed, due to the large financing required and the
mismatch of businesses between Schneider and Tyco, one of the
Schneider Electric said earlier it, "is not currently in
discussion with Tyco International regarding a potential
strategic transaction between the two companies."
For a snapshot of Tyco's business, see: [ID:nLDE73C1WK]
For Breaking Views column, click: [ID:nLDE73C0K8]
For a Reuters Insider segment click: [ID:nRTV209813]
For more on M&A, click: r.reuters.com/kyb46q
A person with knowledge of the matter said on Tuesday that
Schneider, with a market capitalization of about $45 billion,
had held early talks with Tyco, which has a current market
value above $24 billion. The Wall Street Journal reported the
French company has made a preliminary $30 billion bid, citing
people familiar with the matter.
"The specificity of these reports leads you to believe
there's been some level of conversation," said Jeff Sprague,
Managing Partner at Vertical Research Partners, a U.S. research
boutique focused on industrial large-cap stocks. "There's too
Tyco's appeal lies in its access to people's homes as
security systems evolve from simple burglar alarms to more
sophisticated home-automation systems that, for example, allow
residents to open a door remotely or monitor their children.
"It's a big conduit into the home," he added.
Morgan Stanley analysts said any deal would likely involve
a premium of up to 35 percent, implying a takeover price of
about $32 billion.
Morgan estimates a deal would require up to $17.2 billion
of fresh equity, suggesting it could also prompt Europe's
biggest-ever nonfinancial share issue, a record held by Enel's
$16.6 billion flotation in 1999.
It would be the biggest-ever industrial acquisition outside
autos and transport and the second-biggest M&A deal this year,
behind AT&T Inc's (T.N) $39 billion purchase of T-Mobile USA.
The shares of Schneider, which competes with Germany's
Siemens AG (SIEGn.DE) and ABB Ltd ABBN.VX of Switzerland,
have fallen over 8 percent this week on concerns about
financing a deal. The stock was down 0.1 percent on Wednesday
at 112.75 euros.
"This would be huge compared to Schneider's size," said
Bertrand Lamielle, head of asset management at Paris-based
B*Capital, with $6.5 billion under management. "The doubts have
been reflected in Schneider's share price this week."
Shares of Tyco, which has been restructuring under Chief
Executive Ed Breen to refocus on its security services, fire
safety systems and industrial products, were down 0.9 percent
at $51.47 in Wednesday afternoon trading on the New York Stock
Exchange after earlier falling more than 3 percent.
Tyco has reinvented itself in the decade since a fraud
scandal that eventually landed former CEO Dennis Kozlowski in
prison. Kozlowski's high-profile criminal case featured
revelations of lavish spending for extravagant home decor and a
$2 million birthday party.
Tyco has sold off assets while expanding its security
systems unit with the 2010 acquisition of Brink's Home Security
for $1.9 billion. Security technology accounted for more than
40 percent of sales last fiscal year. In 2007, Tyco spun off
its healthcare and electronics divisions, essentially chopping
the company into thirds.
Breen, CEO of Tyco since 2002, stayed on as chief of the
new, smaller Tyco. He has won plaudits on Wall Street for
slashing debt accumulated during Kozlowski's M&A shopping spree
and generating more of Tyco's sales from so-called "recurring
revenue," providing a steady cash stream.
Schneider has made a series of small to medium-sized
acquisitions, many of them focused on emerging markets such as
India and Russia.
Schneider's acquisition of American Power Conversion (APC)
for $6.1 billion, completed in 2007, got a chilly reception
from investors when it was announced, with some analysts citing
pricey multiples and execution pressures.
"Schneider, if you look back at APC, they always kind of
ring the bell for the end of the M&A cycle in our space and
they always pay a nose-bleed price," said analyst Nick Heymann
of Sterne Agee, who put the chance of a Tyco-Schneider deal at
less than 25 percent.
(Additional reporting by Helen Massy-Beresford, Christian
Plumb and Lionel Laurent in Paris, Emma Thomasson in Zurich,
Vincent Flasseur in London, and Nadia Damouni and Soyoung Kim
in New York; editing by David Cowell. Derek Caney and Andre