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Veolia Offers $3.5 Billion for Suez Stake and Eyes Takeover

Francois de Beaupuy and Geraldine Amiel

(Bloomberg) -- Veolia Environnement SA offered 2.9 billion euros ($3.5 billion) for a 29.9% stake in French rival Suez SA, reviving an eight-year-old attempt to create a world leader in waste and water services.

Veolia offered to acquire the stake from energy giant Engie SA for 15.50 euros a share in cash, 27% more than where the target closed Friday, Veolia said in a statement Sunday. Suez said its board will meet “shortly” to consider the unsolicited bid. If the offer is successful, Veolia will make an offer for the rest, using the price paid to Engie as a reference point, and taking into account any subsequent significant events affecting Suez.

Suez shares rose as much as 20% and traded up 18% at 14.46 euros as of 9:45 a.m. in Paris, suggesting some investors doubt Veolia’s bid will be successful. Veolia shares rose 3.7% to 19.81 euros and Engie shares were trading up 6% at 11.81 euros.

The transaction -- a full bid would value Suez stock at 9.7 billion euros -- would create a company with combined revenue of more than 40 billion euros with plants treating everything from water to plastic and hazardous waste across the globe. It comes as utilities try to revive earnings dented by the coronavirus pandemic, and as governments push to spend more on environmental services in their economic stimulus packages.

“In a global market, size is critical to finance the equipment needed to fund the environmental transition of cities and industries,” Veolia Chief Executive Officer Antoine Frerot said in a conference call. “The complementarity of both groups is very strong.”

Engie said it will evaluate the offer and make a decision based on “the most attractive solution for its shareholders, while respecting all stakeholders, and after having weighing the industrial project’s quality.”

With a stake of 23.6% in Engie, the French government has a say in the outcome. The government will study the offer, consider Engie’s interests, the quality of the industrial project and make sure there are a multitude of players in the business of providing services to local governments, Finance Minister Bruno Le Maire said in a statement.

“Engie is likely to accept the offer in order to crystallize value and quickly proceed with its latest asset rotation,” Vincent Ayral, an analyst at JPMorgan Chase & Co., wrote in a note. “The strategic logic of a combination of Veolia and Suez is very strong and would create an uncontested world leader in environmental services at a time when the ecological transformation is accelerating.”

Prior Attempt

While the government made “no comments” when Veolia informed it of the plans, Frerot expressed confidence the bid would go through. Veolia would assess Engie’s decision if it were to reject the offer, the CEO said, saying it’s too early to speculate.

The companies tried and failed to cement a deal in 2012. Their unofficial talks foundered on antitrust issues over their French water businesses, government concerns about job losses, and disagreements among leaders of both companies.

Potentially heading off any antitrust concerns this time, French investment fund Meridiam has agreed to buy Suez’s French water business, Veolia said. Other areas of competition include some waste management activities in France and a handful of cases outside France, according to Veolia. The company sees operating and purchasing synergies of 500 million euros in the deal.

The latest approach highlights a reversal of fortune for the companies involved. Suez launched a large divestment program last year to reinvest in more promising assets and reduce debt, something that Veolia managed successfully in the middle of the last decade. Engie announced a major asset sale program in July.

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Shareholders of all three entities have missed out on a rally that’s sent global equity indexes to records. Year-to-date, Engie and Veolia had fallen 23% and 19%, respectively, before Veolia made its offer.

Veolia would undertake a capital increase to help fund a full bid and keep an investment-grade credit rating, Frerot said, adding that it’s too early to give any details. Veolia would also take on Suez’s debt of about 11 billion euros.

Veolia said its offer to Engie is valid until Sept. 30. Messier Maris & Associes, and Perella Weinberg Partners are acting as financial advisers to Veolia for the transaction.

(Adds government and analyst comment, share moves from third paragraph.)

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