“Friendliness”, hostility and big deals: we explain Veolia’s takeover attempt on Suez

“Friendliness”, hostility and big deals: we explain Veolia’s takeover attempt on Suez

After trying for several months to find an amicable agreement to buy out its competitor, the world number one in water and waste announced on Sunday the launch of a stock market “raid” which goes against the commitments made. . What Bercy denounces. Explanations.

Suez employees demonstrate against Veolia's takeover offer on September 22, 2020, in Courbevoie (Hauts-de-Seine).  (MEIGNEUX ROMUALD / SIPA)

“French capitalism cannot be the war of all against all.” The Minister of the Economy, Bruno Le Maire, called for the “Reason” and at the “wisdom”, Monday February 8, after the announcement the day before of a hostile takeover bid by Veolia for its competitor Suez. Behind this standoff between the two hexagonal giants of water and waste, which has lasted for many months, “It is the daily life of the French in tens of thousands of municipalities” which is at stake, insisted the boss of Bercy, annoyed, on Europe 1.

As of Monday morning, justice suspended this operation. During the day, the management of Suez and the unions of the company brandished their shields against the world number one in the sector. Difficult to see clearly in this case? To help you analyze this shock of the titans (27 billion turnover for Veolia, 18 billion for Suez), franceinfo explains the three letters at the heart of the new round: OPA.

What is a takeover bid?

A takeover bid is an operation intended to buy back a listed company. Since the sums involved are significant, the procedure is very tightly controlled, with more complicated rules than if you are simply looking to buy out your neighborhood butcher’s shop. This procedure is even compulsory when it comes to taking control of at least 30% of the capital of the targeted company. In this case, Veolia is eyeing in this case the 70.1% of Suez that it does not yet own.

In practice, the initiator of the takeover bid offers the shareholders of the coveted company to buy back “cash” the shares they hold. To convince them, he offers them a price much higher than the share price: in 2020, this “premium” was on average 29% out of a total of 24 takeover bids, according to The OPA Journal. Here, Veolia thinks big: “The proposed price of 18 euros per share (…) shows a premium of 75% compared to the closing price of the Suez share” July 30, 2020, the date of the start of the soap opera (when Engie announced that it wanted to sell its stake in Suez) and of the soaring action, underlines the group in its press release. Friday, at the close, the Suez share was valued at 17.3 euros.

Once the takeover has been validated by the financial authorities, the shareholders generally have around thirty days to agree (or not) to sell their shares, which determines the success (or not) of the operation, as detailed. Income. The threshold for success of a takeover bid is set at at least 50% of the capital. “If the potential buyer does not reach this threshold following his offer, it is null and void and the shares are returned to the shareholders”, details the site of the specialized weekly.

Why do we speak of a friendly or hostile takeover bid?

A takeover bid is said to be friendly when the two companies concerned have agreed on the principle and the terms of the offer, in particular the repurchase price of the shares. Of the 350 takeover bids identified in France since 2010, 344 were friendly, and Veolia hoped to launch the 345th, before being opposed by a refusal from Suez, which fears “A dismantling” social and industrial.

A takeover bid is said to be hostile when the “predator” and the “prey” have not found any prior common ground. This is the case in this case, as Veolia lamented on Sunday.

A hostile takeover bid is often compared to a stock market “raid” (an aggressive and unexpected operation). The management of the target company may try to resist it. “For example by focusing on employee shareholding, by linking cross-shareholdings with other companies, etc.”, details the site of Capital. Suez, whose objective is to dethrone Veolia and not to be swallowed up by its competitor, is thus in discussions with two French and American investment funds, Ardian and GIP. It is supported by the unions, who fear thousands of job cuts (Suez has more than 89,000 employees worldwide) despite Veolia’s promise to preserve all jobs.

Whatever the type of takeover bid, these operations are “Aggressive modes of development”, estimates Anne-Sophie Thélisson, teacher-researcher in management sciences at Esdes Lyon Business School. “If we want to be equal to equal, without taking control, we are on alliances or at least mergers like PSA and Fiat-Chrysler, and not on these acquisitions which are realabsorptions”, analyzes this specialist in mergers and acquisitions.

Who can referee this battle?

Judging the filing of his rival’s takeover bid “Irregular and illegal”, Suez urgently seized the commercial court of Nanterre on Sunday evening. The latter ordered Monday morning the world’s number one water and waste to suspend its initiative, the time that justice examines the case ten days later. Suez denounces a “Flagrant violation” a friendly commitment made by Veolia in October and a failure to respect “Business ethics”. The group recalls that “Six legal proceedings are underway” in this file.

In addition to justice, the Financial Markets Authority (AMF), the “gendarme of the Stock Exchange”, was seized Monday by Bruno Le Maire. “This offer is not friendly and it contravenes the commitments made on several occasions by Veolia, he hammered. It also raises questions of transparency. Why was this offer suddenly made? (…) It can cause competition problems. ” The Minister of the Economy mentions in particular the risk of the appearance of“A unique actor” in a monopoly situation in its sector.

To comply with competition rules, Veolia plans to sell the Water branch belonging to Suez and sell it to an investment fund. However, the group remains cautious in the face of a potential third arbitrator: he has indicated that the success of his takeover will be conditioned. “To obtain authorization for merger control by the European Commission”.