Deal Reporter
General Cable likely to resist Prysmian amid restructuring - bankers
Any imminent approach by Prysmian [BIT:PRY] to acquire General Cable [NYSE:BGC] would likely be rebuffed as the US company is focused on restructuring and has some way to go before seeing it pay off, said bankers following the situation.
According to recent news reports, Prysmian’s advisers have been studying the acquisition of the US group. Shares in General Cable gained around 20% on the initial report in March and have continued to rise.
But, two of the bankers believed Prysmian advisers’ analysis has not yet led to an approach. Goldman Sachs is the Milan-based company’s adviser, they said.
A spokesperson for Prysmian did not return calls for comment.
The US group has gone through a difficult time and would be unwilling to sell itself at this stage given its share price weakness, a third of the bankers noted. General Cable’s stock is down around 20% in the past 12 months despite the surge on the back of M&A speculation. The Prysmian stock has gained almost 30% in the same period.
Being amid a major revamping effort that includes asset disposals and cost savings, as well as management and board reshuffles, the US group would want to see some progress before engaging in takeover talks, the second and the third banker agreed.
As the company’s outlook improves, the board could become more open to engaging in discussions as it is more in a position to negotiate a better price, one of them suggested. The first banker said he thought it could take the company up to six months to find a new chief executive and as long as two years to complete its restructuring plan.
To avoid a long wait and adopt a friendly approach, Prysmian could include a share component in the offer, giving the target’s shareholders exposure to the upside coming from the integration, a fourth of the bankers suggested. This option would also reduce the bidder’s cash needs, the banker pointed out.
Prysmian could also theoretically launch a hostile bid for General Cable, but the US company’s board could easily fend it off through a rejection and other defensive measures, a fifth of the bankers said.
The Prysmian management is seen as conservative and is unlikely to go for a hostile approach, the third banker added.
At the presentation of the company’s 1Q results on 6 May, General Cable President and CEO Gregory Kenny said the search for the next CEO and an operation-oriented independent director was progressing.
After a positive start of the year, General Cable’s disposal plan is expected to further improve its leverage and the EBITDA margin, the second banker said. The US group has been selling assets in the Philippines, Fiji and China and still in the process of offloading other activities in the APAC region and Africa.
With cash on its balance sheet and the Western Link issues now largely resolved, Prysmian would be ready for a transformational deal, the third banker said. Its CEO Valerio Battista confirmed the company was considering M&A options during its 1Q results conference call on 7 May. But, the increase in its debt as a result of the Scotland project struggle eases pressure on the management to make an acquisition, the second banker argued.
Prysmian had a net debt/EBITDA ratio of 2.06x and cash of EUR 305m as of 31 March 2015. It had undrawn facilities of EUR 1.47bn as of 31 December 2014.
While the Prysmian management would be extremely cautious in evaluating any transformational deal from a leverage perspective, it could accept stretching the company’s net debt/EBITDA to up to 2.5x and finance the rest in equity, the first two bankers agreed. In 2011, Prysmian issued 31.8m shares to finance the Draka acquisition.
French rival Nexans [EPA:NEX] could also eye the General Cable acquisition after completing its own restructuring, the third banker suggested. In contrast, a Nexans acquisition by Prysmian would be complicated by significant overlaps in the submarine cables market, triggering antitrust concerns, the banker noted.
According to a Credit Suisse report, Prysmian and Nexans controlled 40% and 32% of the market based on 2013 sales estimates. General Cable would be a good fit for either party, having little exposure to the submarine cables market, the report notes.
General Cable has a market cap of USD 923m.