Breakingviews - Suez white knight is a flawed M&A saviour

A flag with a logo of Suez is seen at the Suez recycling site in Oree-d'Anjou, France, September 28, 2020.

LONDON (Reuters Breakingviews) - Bertrand Camus is doing his best to evade Veolia’s grasp. The boss of 10 billion euros water-to-waste group Suez has backed a prospective takeover bid by French private equity group Ardian to ward off its rival. Shareholders should remain sceptical.

Ardian’s last-gasp deal attempt appears rather desperate. On Thursday, it said itself and a “mostly French” group of funds intended to bid for Engie’s 29.9% stake in Suez. Camus then added that, if the consortium succeeded, Ardian would immediately make a cash offer on the same terms for the rest of Suez.

An Ardian approach would have some merits. It would ensure all shareholders are treated equally. It carries lower execution risk: Ardian doesn’t have the same anti-competition concerns that Veolia brings. And without the same scope for cost savings, Ardian could offer Suez steel-plated job guarantees in the middle of a pandemic.

Yet with no details on its price nor future strategy, Ardian’s carefully couched intentions are hard to unpack. If it wanted to sell off Suez’s constituent businesses, the latter’s equity could be worth nearly 13 billion euros, according to Breakingviews calculations. That implies Ardian and its backers could offer 20.35 euros per share, more than a tenth higher than Veolia’s improved bid. Suez puts its own worth at 25 euros per share. Either way, a breakup would contradict Camus’s aim of keeping the group whole. And with Suez’s net debt already over 3 times projected 2021 EBITDA, there’s limited scope for Ardian to juice up returns by adding extra leverage on the company.

It may be theoretical in any case. Engie, which is backed by the French state, indicated Ardian’s offer has come too late as it prepares to give a final answer on Oct. 5. It has already welcomed Veolia’s improved offer which, if successful, would make it Suez’s largest shareholder and give it a platform to launch a full union. Suez shareholders may also prefer the relative certainty of an existing cash offer, assuming Veolia pays them the same price.

The fact that the latter hasn’t yet explicitly made that pledge still gives Camus some defensive wriggle room. But it’s hard to square his enthusiasm for Ardian given so many grey areas.


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