Tricoire: Buy mode

Paris, Oct. 30 (Reuters): French electrical equipment group Schneider Electric said on Monday it had agreed to buy American Power Conversion (APC) for about $6.1 billion in cash at $31 a share to grow in uninterrupted power supply.

APC was under pressure from a shareholder, Matrix Asset Advisors Inc, to sell itself because its share price did not reflect its intrinsic value.

According to Reuters data Schneider is paying 36 times expected 2007 earnings per share and 2.44 times the expected 2007 sales of APC.

Schneider will finance the deal with a 4.5-billion-euros ($5.71 billion) syndicated loan, a share capital increase via a rights issue of some 1.2 billion and through the issue of bonds.

Schneider shares traded 5.2 per cent lower at 83.8 euros each, following a 16 per cent gain so far this year. The DJ Stoxx industrial index was 1 per cent down.

Analyst Olivier Esnou at Exane BNP Paribas said that at 30 times expected 2007 earnings before interest and tax (EBIT), the deal was “very expensive” and the timing looked poor.

“Achieving a return will require turning around APC’s large UPS business. But Schneider has little track record in turnarounds, and may be pursuing growth at too rapid a pace,” he added.

The group said the buy would make it a global leader in the market for critical power services, which ensure uninterrupted power supplies to data centres and production facilities.

Schneider said the deal was based on an enterprise value of about $5.5 billion.

Schneider said the acquisition was expected to result in value creation in excess of $3 billion arising from a turnaround in large uninterrupted power supply systems, strong complementarity with Schneider’s MGE UPS Systems subsidiary, and synergies with Schneider Electric’s product offering.

It said the deal would generate synergy benefits of some $220 million, of which 70 per cent will be achieved by 2009.

The transaction is expected to boost Schneider’s earnings per share from 2007 and meets Schneider Electric’s criteria for three-year return on capital employed for acquisitions.

The price represents a 30 per cent premium to APC’s closing share price of October 27.

Deutsche Bank analyst Martin Wilkie said the buy made sense if synergies could be achieved.

Strategic move

“This acquisition is a significant strategic move for the company. It allows us to greatly strengthen Schneider Electric in the fastest growing segment of our core business: electrical distribution,” Jean-Pascal Tricoire, chief executive officer of Schneider Electric, said in a statement.

“We expect this transaction to generate significant value by leveraging the unique complementary strengths of the two companies. Thanks to our knowledge of the sector through MGE UPS Systems, we are very confident in our ability to achieve this value creation. Finally, the re-leveraging of our balance sheet is consistent with our prior commitment,” he added.

Lazard and Merrill Lynch & Co are financial advisers to Schneider Electric, and Cravath, Swaine & Moore LLP is legal counsel.