Suez’s New Offer Shows Little Sign of Ending Veolia Standoff

Suez SA’s latest proposal showed little sign of resolving a bitter takeover battle with Veolia Environnement SA, suggesting the utility’s annual shareholders meeting in May or June will be the defining moment for the dispute.

Shares of Suez rose on Monday after it proposed a negotiated solution, which would involve Veolia paying a higher price and selling on part of the waste and water utility to two private equity funds. But Veolia swiftly rejected the plan and stuck to its original 18-euro-per-share hostile bid, leaving limited scope for a resolution to the stalemate.

“We continue to consider that the solution will come from the AGM to be held by end-June,” Xavier Regnard, an analyst at Bryan, Garnier & Co, wrote in a note. “We don’t anticipate any counteroffer above 18 euros per share, despite the interest demonstrated by Ardian and GIP.”

Suez said on Sunday it would support an offer of at least 20 euros per share if Veolia lets Ardian SAS and Global Infrastructure Partners purchase a bit more than half of Suez as part of the deal. Alternatively, Suez would allow its shareholders to consider a full takeover by Veolia at 22.50 euros per share.

It will be for Suez shareholders to decide on the responses of the company’s management and board, and for the courts to rule on the individual responsibility of the directors concerned, Veolia said.

Suez’s shares rose as much as 2.4% in Paris, and were trading 0.6% higher at 18.22 euros at 1:38 p.m local time. Veolia dropped 2%.

Suez’s proposal, the latest step in a long and bitter takeover battle between the two rivals, is aimed at convincing investors that Veolia’s initial offer undervalues the company. The companies have been fighting for months in the boardroom, courts and political arena. The French government has tried and failed so far to mediate between the two.

“Veolia has rejected Suez’s new proposal, indicating continued uncertainty around the situation,” Ahmed Farman, an analyst at Jefferies International Ltd., wrote in a note. “However, the near-term impact on Suez shares is likely to be positive given the anchoring toward a 20-euro-per-share bid valuation within the new proposal.”

Ardian and GIP made a firm offer to buy slightly more than half of Suez, assuming the two water utilities agree on terms of a takeover. Suez said it’s backing the funds’ proposal, and is activating a legal mechanism aimed at making Veolia’s takeover more complicated.

Ardian and GIP are offering to buy Suez’s French waste and water units as well as its international water and technology businesses for 11.9 billion euros ($14.2 billion), roughly equivalent to Suez’s current market value. The businesses that Ardian and GIP are offering to buy have sales of about 9.1 billion euros, or 53% of Suez’s 2020 revenue.

Conditions Attached

The Ardian-GIP proposal is “not a counteroffer” and is conditional upon a deal between Suez and Veolia, Ardian’s head of infrastructure Mathias Burghardt said during a press call on Sunday.

Alternatively, if Veolia were to withdraw its takeover offer within six months, Ardian and GIP could make a bid for the whole of Suez at 20 euros per share, the private equity firms said.

Speaking to reporters Sunday, Suez Chairman Philippe Varin signaled the offer was an opening and only a first step in potential negotiations with Veolia, which it aims to complete by the “reachable” deadline of April 20.

If no agreement is found by then, Suez warned it would go ahead with its strategic review, potentially selling key assets that Veolia wants. Veolia said it was not interested in the proposal, calling it a “dismantling” of the company.

Poison Pill

Veolia refused any discussions with Suez unless legal proceedings against Veolia are suspended, as well as the sale of strategic assets by Suez. It also demanded that the “poison pill” Suez has created to prevent Veolia from carrying out its takeover be dissolved.

Suez has created a Dutch foundation that can block the sale of its French water operations until September 2024. Veolia is trying in courts to challenge the move, which would make it harder to address antitrust issues stemming from its takeover.

Suez said on Sunday it would dissolve the Dutch foundation if there’s a deal between Suez and Veolia by April 20, or if Veolia increases its takeover offer to 22.50 euros per share by May 5.

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