Schneider Electric SA (EPA:SU) (OTCMKTS:SBGSF) has agreed to buy British company Invensys plc (LON:ISYS) (OTCMKTS:IVNYY) for 3.4 billion pounds ($5.2 billion) to further enhance its high marginal industrial automation business and gain more traction in the energy sector, says a press release from the company.
Details of the deal
After the purchase of American power Conversion Corp, in 2006, for $6.1 billion, Invensys plc (LON:ISYS) (OTCMKTS:IVNYY) deal happens to be the biggest for Schneider Electric SA (EPA:SU) (OTCMKTS:SBGSF). It will cover automation software of Invensys that backs up running power stations oil refineries and chemical plants with Schneider’s automation products for car, aerospace, food and beverage industries.
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Integration cost is expected to be around 150 million euros over 2014/15 and acquisition cost to come around 60 million. Tax savings would be about 400 million over the first five years. The deal will be completed in the fourth quarter of 2013.
Emmanuel babeau, Chief financial officer, said to reporters that the decision over appliance unit of Invensys plc (LON:ISYS) (OTCMKTS:IVNYY) would come later and most probably it could be sold.
Acquisition to enhance Schneider’s portfolio
Invensys inclusion in the portfolio will enhance Schneider Electric SA (EPA:SU) (OTCMKTS:SBGSF) and assist it to stand in competition to larger companies like Switzerland’s ABB Ltd (ADR) (NYSE:ABB) (STO:ABB) and Germany’s Siemens AG (NYSE:SI) (FRA:SIE) (ETR:SIE). Further, the French player will get a chance to cross sell its energy saving products to high energy consuming customers of Invensys plc (LON:ISYS) (OTCMKTS:IVNYY).
According to Schneider Electric SA (EPA:SU) (OTCMKTS:SBGSF) this deal would save 140 million euros on cost by 2016 and will generate additional revenue of around 400 million euros by 2018.
Is the deal expensive?
Schneider Electric SA (EPA:SU) (OTCMKTS:SBGSF) agreed upon paying 502 pence per share in cash and stock, which is a premium of 14 percent on Invensys’ closing price. Total price paid is slightly less than the initial proposal of 505 pence per share, but cash component is more at 372 pence compared to initial 319 pence.
“The Invensys deal is a little bit expensive, but if we discount back the synergies it looks OK,” said Espirito Santo analyst Rob Virdee.
As per the data compiled by Reuters, offer from Schneider Electric SA (EPA:SU) (OTCMKTS:SBGSF) values Invensys plc (LON:ISYS) (OTCMKTS:IVNYY) at 22.8 times the expected earnings for the next year while other British machinery firms are trading at a multiple of 13.3.
Invensys plc (LON:ISYS) (OTCMKTS:IVNYY) has been a potential takeover target for quite a few times, and is overshadowed by bigger players. According to some analysts, other firms like Emerson Electric Co. (NYSE:EMR) and General Electric Company (NYSE:GE) can also place their bid on Invensys. Rumors that Invensys would be sold started when the company sold its rail unit, in November, to cut down its pension deficit.