Suez Sets a High Bar for Any Talks on Veolia Takeover Offer

Suez SA set a high bar for any resumption of talks about Veolia Environnement SA’s takeover offer, after issuing yet another emphatic rejection of its rival’s proposal.

Veolia’s bid of 18 euros ($21.80) per share is too low, and its commitments to workers and customers are insufficient, said Suez Chairman Philippe Varin. The French waste and water-treatment company cited expectations for a sharp rebound in profit this year as evidence that it’s being undervalued.

It was unclear whether Varin was signaling a potential opening in the deadlock that has persisted for months between the two companies, or setting another condition for talks that Veolia was destined to reject. The comments indicate Suez’s management could be seeking an increase in the offer price of between three and five euros a share, analysts at Jefferies wrote in a note.

“We’re ready to negotiate,” Varin said at a press briefing on Friday. “If you enter into negotiations, it’s obvious that at the end of the day, we want to be satisfied on our three points.”

Veolia Chief Executive Officer Antoine Frerot is still willing to meet Suez’s board members to present and discuss Veolia’s project, a company spokesman said.

Suez shares were trading 0.4% higher at 17.23 euros at 3:34 p.m. in Paris, while Veolia stock dropped 3.3%.

Veolia already owns nearly 30% of Suez, after buying the stake from energy group Engie SA for 3.4 billion euros in October. It intends to combine with its rival and become a global giant in waste and water services. After months of being rebuffed by Suez’s management, Veolia announced a hostile takeover offer earlier this month.

Talks to find a negotiated solution between the two groups have already fallen apart at least twice. As the two utilities have sparred in the media, the boardroom and the courts, the French government has repeatedly called for an end to the stalemate and for friendly talks to resume.

Higher Price

Suez’s management “made some indications on the gap it sees between the offer and its view of fair value,” according to the note from Jefferies.

Synergies stemming from a deal are estimated at between four and eight euros a share, and Suez stakeholders should be entitled to get half of that, Chief Financial Officer Julian Waldron said at the briefing. Veolia’s valuation of Suez should also add at least another one euro per share, he said.

There isn’t a date set yet for Suez’s next annual shareholders meeting but when it takes place it may prove to be a big step in the takeover battle.

Varin said he will use the event to defend and accelerate the long-term strategy. That project remains the utility’s preferred option over any combination with Veolia, which bears execution risks, including antitrust reviews that may take as long as 13 months, he said.

Meanwhile, Veolia CEO Antoine Frerot has said his company will seek approval from the European antitrust regulator to vote on some resolutions at the meeting. Some Suez shareholders intend to put pressure on the company to remove obstacles to a deal.

Suez CEO Bertrand Camus said he will ensure Veolia doesn’t use the event to take “creeping control” of the company.

Varin said that private equity firms Ardian SAS and Global Infrastructure Partners are ready to be part of a “negotiated solution” as long as Veolia and Suez reach a prior agreement.

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