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French twist

5 October 2020 By Christopher Thompson

Gallic President Emmanuel Macron has unexpectedly made a national sewage saga even murkier. On Monday night Engie announced it would sell its stake in waste-to-water group Suez to rival Veolia for 3.4 billion euros, despite opposition from the state, its largest shareholder. The turn may embolden Suez Chief Executive Bertrand Camus to double down on his opposition to the deal.

Engie said it had accepted Veolia’s 18 euros per share cash bid for its 29.9% stake in Suez in part due to Chief Executive Antoine Frérot’s “unconditional commitment” not to file a hostile takeover bid for the rest of the company. That is a welcome result for the energy group’s shareholders, doubly so given its largest investor, the French government, voted against the sale. The Élysée’s failure to sway the board is a surprising twist in a country not famed for its laissez-faire approach to state-backed companies.

The Engie board arguably had little choice but to take the money. Neither Frérot nor Camus appear close to agreeing on a friendly deal. And the only other potential bidder, private equity group Ardian, abandoned its offer earlier the same day. Taking Veolia’s money now hands Engie a fat 75% premium compared to Suez’s share price on July 30, before Engie announced it would review its stake.

Frérot’s work is not yet complete. While the purchase makes him Suez’s largest shareholder, he has made a full takeover contingent on “a prior favourable reception” from Camus. Given the latter’s opposition and poison pill tactics – such as transferring a key French water business to an employee-controlled non-profit foundation – that requires an improbable change of heart. The government’s refusal to be seen to back an apparently hostile bid reinforces Camus’ stance.

Still, the latter’s options are limited. If Suez still refuses to enter into negotiations, then Veolia or other shareholders could call an emergency meeting and threaten to replace the board. Camus’s best bet, therefore, may be to haggle for a higher price for the 70% of the shares that Veolia doesn’t own. A price of 21 euros per share would push the total outlay including debt to 23 billion euros. At that price Veolia could still make an acceptable 6.4% return on capital in 2022, assuming 1.5 billion euros of operating profit that year and 500 million of cost savings. That would represent a sizeable victory for Suez shareholders – and afford Camus a dignified exit.


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