PARIS French power network equipment specialist Schneider Electric is to buy energy software provider Telvent for $1.36 billion as part of its push into energy efficient grids and emerging markets.
The takeover bid is backed by U.S.-listed Telvent's main shareholder and would give Schneider Electric a stronger presence in software to complement its equipment sales. Telvent's software helps manage electricity grids and transportation systems serving industries like oil and gas with a strong position in North and South America.
Schneider Electric said on Wednesday the cash offer values Telvent -- which is 40 percent owned by Spanish conglomerate Abengoa -- at $40 per share, or a 36 percent premium to Telvent's average share price in the past three months.
The deal has an enterprise value of 1.4 billion euros ($2 billion) including the purchase of Telvent convertible notes, fits with Schneider's strategy of making small-to-medium acquisitions to bolster its existing businesses and expand into emerging markets, such as India and Russia.
On Tuesday, Schneider announced the acquisition of 74 percent of Indian energy storage group Luminous for 215 million euros.
"In the past two days we've announced two acquisitions that are really just the strict execution of the strategy that we explained to in November -- a very strong push in the direction of new economies," Schneider Chief Executive Jean-Pascale Tricoire said in a conference call.
In April, Schneider consulted bankers and lenders about what would have been a much bigger deal, worth more then $30 billion, to buy U.S. industrial group Tyco International. The talk spooked investors who didn't like the idea of such a large deal and sent Schneider's shares down sharply.
Soon after, Schneider's CEO sought to reassure investors by saying the company would focus on smaller deals over the next year.
"The deal fits in the "medium" category and as such there may be some relief that it affirms the previous management comments," Citigroup analysts Mark Fielding and Alexandre Werbowy wrote in a research note. Given the Luminous deal announced the same week he added that "it does potentially point to a pick-up in the rate of activity."
Spain's Telvent makes information technology systems for the electricity, transport, and oil-and-gas industries, and its systems now manage more than 60 percent of the total oil and gas in North American and Latin American pipelines.
Schneider shares were trading largely flat on Wednesday at 114.55 euros per share at 1045 GMT.
Schneider Electric said the deal would add to earnings by the first year after the deal, excluding implementation costs.
By 2016, it sees 250-300 million euros of revenue synergies and boost earnings before interest, tax and amortization expenses (EBITA) by 30-35 million euros.
Spain's construction-to-energy conglomerate Abengoa agreed to sell its 40 percent stake in Telvent to Schneider in the deal. Shares in Abengoa, which said it would book capital gains of 135 million euros to 145 million euros from the sale, were up 7 percent by 6:46 a.m. EDT.
James Stettler, analyst at Unicredit, said the deal made strategic sense and that the price was "not cheap but seems reasonable" for Schneider.
Schneider is paying an implied multiple of 16 times earnings before interest and taxes (EBIT) compared with its own valuation of 10.4 times 2011 estimated EBIT and a sector average of 10.1 times, according to Citigroup.
"If you think about Schneider, they have a very strong position in product, namely anything in electricity between production and consumption," he explained.
"Now to improve efficiency of solutions you need more software. Think about smart grids, smart transport, it all requires more software."
Smart grid equipment, which can give utilities more control over energy use, helps to smooth demand surges and possibly allow consumers to save money by using power at off-peak times.
From providing transmission interconnections to installing and managing meters, Europe's major industrial firms, including Schneider and its rivals ABB, and Siemens have been expanding into the growing smart grid sector.
Schneider was advised by Santander on the transaction.
(Additional reporting by Lionel Laurent and Blaise Robinson; Editing by Erica Billingham and Andrew Callus)