How warring French corporate giants came out of the abyss

Day two of the World Economic Forum (WEF) 2020

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Photographer: Nathan Laine / Bloomberg

The rare spectacle of a hostile takeover battle between two of France’s biggest companies came to an abrupt end.

After many months of bitter rhetoric, legal wrangling, and accusations of bad faith or sabotage, the cool heads working quietly behind the scenes finally managed to find a compromise. Suez SA has agreed to be acquired by Veolia Environnement SA at a valuation of 13 billion euros ($ 15 billion), creating a global giant in waste and water management services.

The deal was unlocked in part by the most obvious means: Veolia offered a higher price. But getting to the point where the money was enough to tip the scales required subtle interventions from the French political and economic elite, and a broader realization that prolonging the conflict could hurt both companies.

“This deal ends months of uncertainty” and offers “a win-win for both,” said Peter Crampton, analyst at Barclays Bank Plc.

Obstacles overcome

The stalemate that has persisted since Veolia revealed its plan to buy Suez in August first showed signs of ending on Wednesday, according to people familiar with the matter, who asked not to be named because the information was private. It was then that companies accepted a new round of mediation led by Gérard Mestrallet, one of the most prominent figures in the business world in France.

Photographer: Andrey Rudakov / Bloomberg

Mestrallet, himself a former president of Suez, was well placed to break the deadlock. The 72-year-old leader has in-depth knowledge of the interests at stake, having already attempted in 2012 to combine the two companies, rivals since their creation during the French industrial revolution of the mid-19th century.

Mediation began Thursday, but quickly encountered the same old hurdles, people said. Suez CEO Bertrand Camus, who took the leadership role in 2019 and was in the early stages of his business transformation plan, remained focused on limiting the scope of assets Veolia would retain after a takeover.

Throughout the process, Camus had insisted that part of Suez should continue as a stand-alone entity after any agreement, retaining enough scale and growth potential to be a viable business. Despite lengthy discussions, Mestrallet could not persuade him to offer enough Suez assets to secure a deal acceptable to Veolia.

While Camus remained steadfast in his stance on the scope of the deal, Mestrallet also had mostly separate talks with Suez chairman Phillipe Varin. He was more focused on getting a higher price from Veolia, people said.

Government pressure

As mediation began, the French government chose its moment to exert pressure.

Photographer: Simon Dawson / Bloomberg

Finance Minister Bruno Le Maire, who had always urged Suez and Veolia to reach a friendly agreement, met with Eric Lombard, the CEO of the state-controlled lender Caisse des Dépôts et Consignations, on Thursday and asked him to tell Veolia that he would sell CDCs. hold in the company – which stood at 6.1% at the end of last year – if it persisted in pursuing a hostile takeover, the people said.

The CDC confirmed in a statement that Lombard discussed the situation in a meeting with Le Maire. As one of Veolia’s major shareholders, the CDC said it could easily pass messages to management, but rejected the suggestion that it could put pressure on one of its large holdings in the company. manner described by Bloomberg.

France’s finance ministry declined to comment.

With the stakes getting higher and higher for both sides, a breakthrough came on Sunday morning, when Mestrallet brought the two parties together at the Bristol, one of the fanciest hotels in Paris, near the Elysee Palace in Paris. the French Presidency.

Veolia CEO Antoine Frerot offered to resell more assets to the entity that would continue to trade as Suez, and increased its price from € 18 to € 20.50 per share.

Suez was represented by Varin, who had taken the lead in the talks, and Delphine Ernotte, non-executive director of the public service and president of the public channel France Télévision SA. Camus was not present at the meeting, people said.

A spokeswoman for Suez declined to comment on the talks.

Varin brought the new offer back to Suez’s board of directors, which met after midnight. Despite a few initials resistance, the combination of a higher price and guarantees on assets and employment convinced a majority of the company’s executives to accept the offer.

Global giant

Photographe: Eric Piermont / AFP via Getty Images

“Our plan to combine Veolia and Suez has reached a really important milestone,” Frerot told reporters on Monday after announcing the acquisition. “This agreement was concluded thanks in particular to the help” of Mestrallet, he declared.

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