At Last, a Really Bitter French M&A Battle

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France has a full-blown hostile takeover battle on its hands. That’s a welcome step forward for the principle that free markets know best in deciding on the future of companies. But Veolia Environnement SA’s 7.9 billion-euro ($9.5 billion) bid for the 70% of rival Suez SA it doesn't already own is not all good for French finance. Plus it’s a huge tactical gamble for Veolia and its chief executive officer, Antoine Frerot.

The historic French aversion to hostile corporate battles has been on full display since Veolia revealed its ambition to acquire its domestic water and waste peer in August. Finance Minister Bruno Le Maire has repeatedly said any combination must be friendly. But there are times when it’s right that a takeover offer is made directly to shareholders over the heads of management. Bosses have a tendency to dig in amid criticism. Recall how Unibail-Rodamco-Westfield resisted calls by telecoms billionaire Xavier Niel and its former chairman to scrap a cash call last year. In the end, the argument went all the way to a shareholder vote — and the activists won.

However, Veolia's decision to go hostile contradicts previous public pledges not to do so. In October, Veolia snapped up 29.9% of Suez from the then lead shareholder, Engie SA. With Le Maire in the background, Veolia said any public takeover bid for the remaining shares would “require a prior favorable reception from Suez's board of directors.” It said its commitment here was unconditional.

Small wonder that Veolia’s bid is already the subject of a legal challenge. There could of course be wrangling over what Suez’s statements really meant. But more broadly, there are serious questions here about whether Veolia has been fair to the market. After all, investors will have traded on the basis of its communications.

Frerot is probably solely focused on getting full control of Suez. Could his flip-flop help in some way? The tactical advantages aren’t obvious. It’s not just that he’s in another court battle. Politics are flaring up. Le Maire is again calling for a friendly resolution. Veolia’s aggressive tactics have undermined the government’s efforts to be a broker here. Yet Frerot still needs the authorities on side: Did he miss the fact that Le Maire just nixed an attempted takeover of supermarket chain Carrefour SA?

Moreover, the move needlessly complicates the situation when Veolia was already in a strong position. Last month, Suez said it was ready to enter discussions with Veolia after competing interest from a private equity consortium, while vague, appeared to give it some negotiating leverage.

Stranger still is that Veolia didn’t sweeten its offer at the same time. Its own strong stock price suggest its shareholders wouldn’t have balked. That would have created a very different dynamic. Frerot is clearly frustrated. History may welcome the fact that this has edged forward the cause of hostile bids in France. But if tactical missteps mean he fails, or makes needlessly heavy weather of the situation, it may be a while before we see another one.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Chris Hughes is a Bloomberg Opinion columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.

©2021 Bloomberg L.P.

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