Suez Pledges Higher Shareholder Payouts to Thwart Veolia Bid

(Bloomberg) -- Suez SA pledged to boost earnings and shareholder payouts through faster asset sales and cost-cuts as it scrambles to thwart a takeover approach by French rival Veolia Environnement SA.

Veolia last month offered to buy 29.9% of Suez from French utility Engie SA for 2.9 billion euros ($3.4 billion), the first step to taking full control. Suez rebuffed the plan, and has been working on alternative proposals to remain independent. Veolia’s offer expires at the end of the month and Engie has told Suez that time is running out.

Suez will proceed with an exceptional dividend or share buyback of at least 1 billion euros as soon as possible, and by no later than the first half of next year, the water and waste-treatment company said Tuesday in a statement.

It will pay a regular dividend of 65 euro cents a share in 2021, rising to 70 euro cents in 2022. Another 1 billion euros “can be used for further investments” or constitute “an additional extraordinary return to shareholders,” Suez said.

The company’s stock rose as much as 0.9% to 14.97 euros, and traded at 14.96 euros as of 11:53 a.m. in Paris. That’s below Veolia’s 15.50-euros-a-share offer and values Suez at 9.4 billion euros. Veolia shares traded little changed.

“This value proposition is robust and is a much better reflection of the intrinsic value of the company than its current share price,” Chief Executive Officer Bertrand Camus said on a conference call.

Tuesday’s announcement shows Suez sees a potential “doubling of total shareholder value” by 2022 compared with August trading, said Ahmed Farman, an analyst at Jefferies International Ltd. Based on the current share price, Jefferies estimates the market is applying a 20% probability that management will deliver on its new plan.

The water utility, which has announced more than 2 billion euros of asset sales since the start of August, is in advanced talks on a second wave of disposals. It will have reached its 4 billion-euro divestment target in early 2021, Chief Financial Officer Julian Waldron said on the call.

Turnaround Program

A year ago, Suez unveiled a turnaround plan to offload assets and cut costs amid shareholder demands for bigger returns. The company is now “about a year ahead of our initial schedule” for that program, Camus said Tuesday.

Proceeds will be reinvested in faster-growing markets and higher-margin operations such as hazardous-waste and industrial-water treatment, and digital technologies such as smart metering. The funds will also help Suez reduce debt and maintain its credit rating, the company said as it reiterated 2020 financial forecasts. It also increased its 2023 savings target by 20% to 1.2 billion euros.

Outlook

• Sales above 16 billion euros in 2021 and above 17 billion euros in 2022
• Earnings before interest and taxes of 1.35 billion to 1.5 billion euros in 2021, and around 1.7 billion euros in 2022
• Recurring earnings per share of between 75 and 80 euro cents in 2021, and as much as 1 euro in 2022, up from 57 euro cents in 2019

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