March 28, 2011 / 6:15 AM / 8 years ago

UPDATE 3-Madeco to increase stake in Nexans to 20 pct

* Madeco to raise stake from 9 pct in stages over 3 years

* Madeco will buy shares in the open market

* Nexans does not exclude acquisition in medium term

* Nexans shares up 3.54 pct

(Adds market reaction, updates shares, background)

By Astrid Wendlandt and Gus Trompiz

PARIS, March 28 (Reuters) - Chile’s Madeco MAD.SN has agreed to gradually lift its 9 percent stake in cable maker Nexans (NEXS.PA) to 20 percent, Nexans said on Monday, a deal welcomed by analysts as a mark of confidence in the French firm.

Nexans said the agreement with Madeco, a manufacturer of copper and aluminium products that took a stake in Nexans three years ago in return for its own cables business, reflected its wish to have a stable shareholding and was not a defensive move to ward off a predator.

Shares in Nexans outperformed in morning trade in Paris, rising 4.5 percent to 67.53 euros by 0913 GMT, valuing the company at 1.9 billion euros ($2.63 billion)

Buying 11 pct of Nexans to bring Madeco’s holding to 20 percent would cost around 210 million euros euros at current market prices.

“We had been looking for some time to build a stable shareholding,” Chairman and Chief Executive Frederic Vincent told reporters in a conference call, adding talks with Madeco had been ongoing.

Nexans, which lost the bid battle earlier this year for Dutch cable maker Draka to Italian rival Prysmian (PRY.MI), said Madeco could also offer strategic and financial support for the French firm to take part in consolidation of the cable sector.

“In the medium term, it is conceivable that there may be some transactions. If we had to do a deal such as Draka, Madeco would have backed us,” Vincent said.

Nexans is set to be overtaken by Prysmian as the world’s biggest cable maker following the Draka deal.

Nexans bought Madeco’s wire and cable business in Sept 2008 in return for which it got 8.9 percent of Nexans and a board seat.

“It is a good sign from a fundamental point of view, in terms of confidence in long term outlook, and also a support for the share price,” a Paris-based trader said.

Vincent said Nexans had not been approached by a bidder but analysts said the deal with Madeco was aimed at reducing the risk of a raid on a scattered shareholding.

“The capital was very fragmented, so it was a potential takeover target,” one French analyst said, declined to be named.

“Management’s goal is to reduce this risk.

Vincent said about 84 percent of Nexan’s share capital was floated on the market, in the hands mainly of U.S., British and French institutional shareholders. The French government’s strategic investment fund also owns 5 percent of Nexans.

Madeco will have 18 months to lift is holding to 15 percent and another 18 months to bring it to 20 percent, Vincent said. It will increase its participation in Nexans by buying shares on the open market at current prices or via a capital increase.

Monday’s agreement lets Madeco elect a second representative to the Nexans board at the next shareholder’s meeting in May and a third one once Madeco’s holding reaches 15 percent.

It also locks in Madeco for three years from the date on which Madeco’s ownership reaches 15 percent but the company may also terminate its undertakings in the event of a public offer for Nexans.

In addition, Nexans may terminate the pair’s agreement if Madeco comes to hold less than 20 percent or more than 22.5 percent of its share capital. (Additional reporting by Blaise Robinson; Editing by Greg Mahlich)

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