Veolia prepares for shareholder showdown in vicious Suez takeover fight
Water-waste battle has become France’s most bitter in years
Veolia, the French water and waste group trying to take over rival Suez, appealed directly to its target’s shareholders this month, urging them to ask themselves: “Is the board acting for my benefit, or its own?”
The open letter from chief executive Antoine Frérot was the latest attack in the most vicious French takeover battle in years, which has dragged both sides through the courts and divided investors in Paris into opposing camps.
Suez, which traces its roots to the mid-19th century construction of its namesake canal, is fighting tooth and nail to stay independent.
Chief executive Bertrand Camus is refusing to engage with Veolia, now its largest shareholder after buying almost all of a stake held by energy group Engie. That stance became tougher to maintain this week after Veolia sent a detailed offer to the Suez board for the 70.1 per cent of the group it is still trying to buy.
To win leverage in the fight Suez created a poison pill in September, putting its French water assets into a Dutch foundation mandated to protect them for four years unless the Suez board decides otherwise.
Veolia, which had planned to sell those assets to meet competition concerns, must now try to overturn that move. It has options, including winning a protracted court battle, persuading Suez to reverse course — or replacing the Suez board at a shareholder meeting next summer.
“The current board is refusing to start a dialogue,” Mr Frérot told the Financial Times. “So, if it refuses up until the very end, this will be done with another board. But our project . . . it will be completed.”
Veolia, which wants to create “the world champion of the energy transition” by investing in technology such as carbon capture and air filtration, paid €18 per share for the 29.9 per cent stake it bought from Engie. It says it will pay the same for the rest of the shares, valuing Suez at more than €11bn before debt of roughly the same amount.
But a showdown vote at an annual meeting would be a risk, for Veolia as much as Suez. Mr Frérot has to fulfil consultation obligations with Suez unions before he can unlock his newly bought voting rights. And even then, to vote at a shareholder meeting of a company it is trying to buy requires permission from the EU competition authority since the competitive process has not been completed. Lawyers on both sides are confident they will prevail.
Suez, on the other hand, has to convince shareholders it is more valuable independent by putting an alternative bid on the table or demonstrating it can offer sufficient compensation for rejecting Veolia.
Even if Suez wins the day, it could still be stuck with Veolia as an anchor shareholder unless it can persuade it to walk away, something that would be difficult unless it can quickly boost its current share price of about €16.
“Letting this get to a sort of Yes or No vote is dangerous,” said one senior investor in Paris. “Unless they are both gamblers, they won’t want this to get to the AGM.”
Suez is working on counter-propositions but it remains to be seen if any can match Veolia’s offer, which comes laden with promised synergies, or how many big investors would want to get involved in such a hostile situation.
What is needed, say advisers to both companies, is someone who can play peacemaker and get the two sides talking. But there may already be too much bad blood.
Mr Camus and Mr Frérot have barely exchanged a word since the bid from Veolia was made public at the end of August.
Throughout July, Mr Frérot had tried to talk to Mr Camus about a possible merger, arguing that if Engie was planning to sell down its stake then the status quo would anyway be upended. Mr Camus said he was not interested, according to insiders.
And the last time there was anything close to a deal acceptable to Suez was early October, after Engie’s largest shareholder, the French state, which found itself awkwardly in the middle of the hostile bid, demanded the two sides make another effort to reach a compromise.
Mr Frérot and Suez chair Philippe Varin met at Engie’s headquarters just before the stake sale to Veolia went ahead — up the corridor from a painting showing the Venetians presenting their plans for what would become the Suez Canal to an Ottoman sultan in the 16th century.
According to people familiar with the matter, Mr Frérot put an expanded carve-out of Suez’s French water business on the table, worth about €5bn in annual revenues, and which could be run by the current management.
But Suez refused — in part, say people close to the group, because of fears that a business largely limited to French water would not be able to stay relevant.
Some advisers think a return of that plan, perhaps funded by private equity and adjusted to address Suez’s concerns, could allow for a relatively friendly denouement. Senior figures at Suez say they are open to talks continuing.
But Mr Frérot is scathing about what he sees as gamesmanship from Suez during the last round of negotiations, saying “when they saw that I was ready to make it €5bn, they ran away.”
And there is a limit to how far he will go.
“Today if they say ‘we are OK with discussions [of a carve out] around the €5bn mark’, I would be OK with that,” he said. “But if it’s €10bn, no, it’s not possible.”
Mr Frérot insists he is in a strong and improving position.
“Time is on our side,” he said. “With every day that passes we get closer to the end”.