Veolia Hostile Bid for Suez Hit by Political, Legal Backlash

Veolia Environnement SA experienced a backlash for its hostile attempt to buy utility rival Suez SA, as a French court ordered the suspension of any bid and the government accused the company of reneging on promises to seek a friendly deal.

The dispute between the two French waste and water giants was already testing the bounds of the country’s corporate culture. A hostile takeover is a rare thing in France, and the unions compared Veolia’s move to a “declaration of war.” The escalation may put increasing pressure on an already interventionist government to broker a deal.

“French capitalism can’t be a war of everyone against everyone,” Finance Minister Bruno Le Maire said in an interview with Europe 1 radio. “Everyone has to be reasonable, wise and have an idea of general public interest because it is a question of thousands of jobs.”

A court in Nanterre ruled on Monday, in an interim decision, that Veolia must hold off on making any bid that hasn’t been approved by Suez’s board until a case has been heard. Suez is challenging the hostile offer, arguing that Veolia’s decision to go directly to shareholders was “illegal” because the company committed in court to keep matters amicable.

Veolia Chief Executive Officer Antoine Frerot told reporters that the hostile bid is valid because the company is allowed to change its intent. While aggressive by French corporate standards, the move may be the only way to unblock the stalemate that’s persisted since Veolia bought Engie SA’s stake in Suez for 3.4 billion euros ($4.1 billion) last year.

“Veolia doesn’t have much other choice,” said Xavier Regnard, an analyst at Bryan Garnier & Co. “They have to go all the way because they can’t remain stuck with just 29.9% of Suez, with little influence, which would be the worst situation.”

Long Battle

This is the latest twist in a months-long battle that’s playing out in the boardroom, the courts and the French political arena. Veolia stunned Suez and the utility industry when it announced a plan to merge with its arch-rival last summer, rekindling an old project to tie-up the world’s largest waste and water utilities.

In spite of Frerot’s assurances, prior to Sunday, that he would only make a friendly approach, Suez has consistently cried foul. It says the combination, which would create a giant in environmental services with more than 40 billion euros in annual revenue, would hurt employment and reduce competition.

Last week, Suez Chairman Philippe Varin said talks between the opposing parties would start “very soon,” but there was little indication that the two sides were willing to engage meaningfully with their rival’s position.

In a statement late on Sunday, Veolia expressed exasperation with Suez’s board and announced that it will make a hostile bid, offering 18 euros a share for the 70.1% of the company it doesn’t already own.

Veolia only wanted to talk about its takeover plan, while Suez said talks should focus on a deal involving private equity firms Ardian SAS and Global Infrastructure Partners, which would keep the companies separate.

Suez “was not sincere when it pretended to discuss” Veolia’s offer, Frerot said. “Suez only wanted to win time to finalize its public tender offer with financial funds.”

In a subsequent press conference, Suez CEO Bertrand Camus offered more talks to find a solution that would reinforce both companies even after Veolia showed “no will” for such a discussion in a meeting last Friday. “Any negotiated solution” must take into account minority shareholders and other stakeholders,” he said.

The Veolia bid remains hostile and undervalues Suez, Varin reiterated Monday. “When an offer is undervalued, as is the case, it can’t be welcomed and must be reworked.”

Government Intervention

Finance Minister Le Maire’s attempt to play referee is the latest sign of the French state’s growing propensity to intervene in boardroom battles. With elections little more than a year away, mergers spark concerns about jobs and whether the government can deliver on its pledge to re-industrialize the country as it recovers from the economic shock of the Covid pandemic.

Last month, the state blocked attempted takeover of supermarket Carrefour SA by Canada’s Couche-Tard Inc. by threatening to use powers of screening of foreign investments.

In the case of Suez and Veolia, however, Le Maire can’t use the same powers because companies are French. He also lost some of his leverage last year when Engie, in which the state has a 23.6% holding, sold its Suez stake to Veolia against the wishes of the government.

On Monday, Le Maire said he would refer Veolia’s takeover bid to the markets regulator Autorite des Marches Financiers because of concerns about transparency and the suddenness of the move. He also cautioned Veolia on how competition authorities would view the deal.

Veolia’s CEO said its offer will be open once it gets antitrust clearance, which should take 8 to 14 months.

©2021 Bloomberg L.P.

BQ Install

Bloomberg Quint

Add BloombergQuint App to Home screen.