British tech firm AVEVA Group announced on Tuesday that it has settled a merger deal with French automation company Schneider Electric SE, bringing the companies closer to creating what is believed to be one of the biggest UK-listed software group.
AVEVA’s chairman Philip Aiken said that the transaction will be transformational for FTSE50-listed group as it will build a global leader in industrial software, capable of competing better on an international level.
Through the combination, Schneider and AVEVA will be able to create a larger industrial software provider worth more than £3 billion which could open the opportunity to cut costs as well as find new customers by offering a wider variety of products. The deal is expected to be done by the end of 2017.
The merger came at a time when AVEVA decided to minimize its reliance on the slowing oil and gas, as well as marine markets after the business came under pressure as customers restrained from spending due to low commodity prices.
The agreement which was structured as a reverse takeover just like the other previous deals that were cancelled, marks Schneider’s third try in three years to combine the businesses.
The first attempt for a merger failed in December 2015 due to integration challenges that could not be solved without significant further risk and cost, while the second approach collapsed after two days in June 2016.
Terms of the Deal
Upon completion of the merger, AVEVA will be receiving a cash payment worth £550 million ($710.4 million) or 858 pence per share from Schneider in exchange for a 60 percent instead of 53.5 percent controlling stake of the expanded company, while AVEVA’s ownership equity will remain at 40 percent.
Moreover, the UK-based engineering software company will also be allocating £100 million ($129 million) of excess cash held on its balance sheet or 156 pence per share to its existing shareholders. Combine this with Schneider’s £550 million and the total represents about 1,014 pence per share.
Schneider will also be issued a share value of approximately £1.7 billion ($2.2 billion), based on AVEVA’s closing share price on Monday.
The companies’ merged entity would have combined sales of £657.5 million ($849.23 million) as well as adjusted operating profit of £145.8 million ($188.4 million) with a margin of 22.2 percent for the financial year 2017 ended March 31.
The enlarged corporation would be listed in the London Stock Exchange (LTSE) once the transaction is complete. AVEVA would also keep its listing and will remain headquartered in Cambridge, UK.
AVEVA’s chief exectutive James Kidd will stay on his position until the board finds a new CEO, at which time Kidd will take the role of deputy CEO.
Britain’s FTSE 250 edged higher by 0.4 percent to £19,781.28 on Tuesday after AVEVA’s shares climbed as much as 24 percent following its merger deal with Schneider.
AVEVA stock price is still continuing its gain with a 28 percent increase to £2,456.69, while Schneider’s shares were not as optimistic as AVEVA's, losing 0.1 percent to €68.81 after earlier gains of 0.3 percent to €69.10.