European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

Finally, both parties avoided taking the public backlash to new highs (on the Suez AGM). On 12 April, <a href="https://www.smartkarma.com/entities/veolia-environnement-sa" target="_blank" data-smartkarma-citation="entities:21568:1" rel="noopener">Veolia Environnement SA (VIE FP)</a> and <a href="https://www.smartkarma.com/entities/suez-sa" target="_blank" data-smartkarma-citation="entities:21546:1" rel="noopener">Suez (SEV FP)</a> publicly smoked the peace pipe by <a href="https://www.veolia.com/sites/g/files/dvc4206/files/document/2021/04/PR-Agreement-Veolia-Suez-EN.pdf" target="_blank" rel="noopener">announcing an agreement</a> on the key T&amp;Cs of a merger to create the "World Champion of Ecological Transformation" (a global water and waste giant), with aggregate proforma revenues of €37 bn.
<ul>
<li>
The offer price is increased from €18 per share to €20.5 per share.
</li>
<li>
Veolia has committed funds to complete the transaction, which will be financed by a bridging loan with a banking syndicate.
</li>
<li>
Both parties have agreed to enter into definitive merger agreements by 14 May.
</li>
<li>
Veolia share price increased by 9.7%, whilst that of Suez increased by 7.7%.
</li>
<li>
Engie, controlled by the French State, will receive compensation for the improvement of the purchase offer.
</li>
</ul>
The improved offer represents:
<ul>
<li>1.5x EV/Fwd revenue, 8.1x EV/EBITDA and 27.4x Fwd P/E.</li>
<li>an implied EV of €25,574 mn and implied equity value of €13,103.6 mn.</li>
<li>€3.2 bn more than the first offer; in spite of that, Veolia's 5-year CDS has barely moved.</li>
</ul>
To avoid competition problems with regulators, a large part of the French assets-and others in Italy, Asia and Africa will be segregarded in a new society, which will not be part of the resulting group. This new company, whose assets will be acquired by the Galus Funds Ardian and Meridiam, GIP, and the Public Bank Caisse des Dépôts, among others, will have a turnover about €7 bn.
The rationale is of the merger is to create a "super French champion" in rising markets such as recycling or energy production based on waste or water resources (fragmented markets), which will have the economic support of new world plans in infrastructures and the impulse of the energy transition.
Suez has had a good run and I have been long since the outset. Now after two price increases, a PR offensive, and 32% gain over the initial price, this offer should be considered final. 
With this agreement, Veolia culminates an integration plan that it began last summer, when it acquired a 29.9% stake in Suez from Engie (at €15.5, then revised to €18.0) and which, since then, Suez had resisted. The stake of Veolia in Suez bars any interloper attempt.
This is a rock solid trade, albeit the gross spread is an unexciting 3.2% on a deal that may take up to a year from now to close. Long TP €20.5, and monitor to add on any dip.

Finally, both parties avoided taking the public backlash to new highs (on the Suez AGM). On 12 April, Veolia Environnement SA (VIE FP) and Suez (SEV FP) publicly smoked the peace pipe by announcing an agreement on the key T&amp;Cs of a merger to create the "World Champion of Ecological Transformation" (a global water and waste giant), with aggregate proforma revenues of €37 bn.


The offer price is increased from €18 per share to €20.5 per share.


Veolia has committed funds to complete the transaction, which will be financed by a bridging loan with a banking syndicate.


Both parties have agreed to enter into definitive merger agreements by 14 May.


Veolia share price increased by 9.7%, whilst that of Suez increased by 7.7%.


Engie, controlled by the French State, will receive compensation for the improvement of the purchase offer.


The improved offer represents:

1.5x EV/Fwd revenue, 8.1x EV/EBITDA and 27.4x Fwd P/E.
an implied EV of €25,574 mn and implied equity value of €13,103.6 mn.
€3.2 bn more than the first offer; in spite of that, Veolia's 5-year CDS has barely moved.

To avoid competition problems with regulators, a large part of the French assets-and others in Italy, Asia and Africa will be segregarded in a new society, which will not be part of the resulting group. This new company, whose assets will be acquired by the Galus Funds Ardian and Meridiam, GIP, and the Public Bank Caisse des Dépôts, among others, will have a turnover about €7 bn.
The rationale is of the merger is to create a "super French champion" in rising markets such as recycling or energy production based on waste or water resources (fragmented markets), which will have the economic support of new world plans in infrastructures and the impulse of the energy transition.
Suez has had a good run and I have been long since the outset. Now after two price increases, a PR offensive, and 32% gain over the initial price, this offer should be considered final. 
With this agreement, Veolia culminates an integration plan that it began last summer, when it acquired a 29.9% stake in Suez from Engie (at €15.5, then revised to €18.0) and which, since then, Suez had resisted. The stake of Veolia in Suez bars any interloper attempt.
This is a rock solid trade, albeit the gross spread is an unexciting 3.2% on a deal that may take up to a year from now to close. Long TP €20.5, and monitor to add on any dip.

Asset Allocation & Fund Positioning, Copley Fund Research

Steven Holden

Asset Allocation & Fund Positioning

Copley Fund Research

Copley Fund Research provide research and data on asset allocation among Global and Emerging Market equity funds.  The analysis details absolute and relative positioning across countries, sectors and industries together with highly granular data on single stock and single fund allocations.  The data is updated monthly with time series going back to January 2011.

Global Research - Analysis of 165 prominent Global equity funds, combined AUM $335bn
GEM Research - Analysis of 127 prominent global EM equity funds, combined AUM $250bn

Asset Allocation - Global and GEM Equity

Cross Asset Strategy

Across our active Global fund universe, Value managers have seen $41bn in outflows over the past 5-years, compared to $65bn of inflows in to Growth funds.With Value funds capturing some long awaited outperformance this year, we analyse the current holdings set up among the 63 active Value funds in our analysis.Overweights in EMEA persist against underweights in Asia and the Americas.  Financials, Materials and Industrials are the key overweights versus underweights in Information Technology.US Financials are the standout overweight, with <a href="https://www.smartkarma.com/entities/citigroup-inc" target="_blank" data-smartkarma-citation="entities:279:1" rel="noopener">Citigroup Inc (C US)</a> and <a href="https://www.smartkarma.com/entities/american-express-co" target="_blank" data-smartkarma-citation="entities:916:1" rel="noopener">American Express Co (AXP US)</a> the key positions.  The FAAMG group of stocks remain key underweight holdings, though <a href="https://www.smartkarma.com/entities/microsoft-corp" target="_blank" data-smartkarma-citation="entities:15273:1" rel="noopener">Microsoft Corp (MSFT US)</a> is the most widely held of the group. <a href="https://www.smartkarma.com/entities/tesla-motors-inc" target="_blank" data-smartkarma-citation="entities:20279:1" rel="noopener">Tesla Motors (TSLA US)</a> is almost totally avoided and in Asia, <a href="https://www.smartkarma.com/entities/meituan-dianping" target="_blank" data-smartkarma-citation="entities:26970:1" rel="noopener">Meituan (3690 HK)</a> , <a href="https://www.smartkarma.com/entities/jd-com-inc-adr" target="_blank" data-smartkarma-citation="entities:446:1" rel="noopener">JD.com Inc (ADR) (JD US)</a> and <a href="https://www.smartkarma.com/entities/pinduoduo-inc" target="_blank" data-smartkarma-citation="entities:27250:1" rel="noopener">Pinduoduo (PDD US)</a> screen as 'Unloved' by global active Value managers.

Across our active Global fund universe, Value managers have seen $41bn in outflows over the past 5-years, compared to $65bn of inflows in to Growth funds.With Value funds capturing some long awaited outperformance this year, we analyse the current holdings set up among the 63 active Value funds in our analysis.Overweights in EMEA persist against underweights in Asia and the Americas.  Financials, Materials and Industrials are the key overweights versus underweights in Information Technology.US Financials are the standout overweight, with Citigroup Inc (C US) and American Express Co (AXP US) the key positions.  The FAAMG group of stocks remain key underweight holdings, though Microsoft Corp (MSFT US) is the most widely held of the group. Tesla Motors (TSLA US) is almost totally avoided and in Asia, Meituan (3690 HK) , JD.com Inc (ADR) (JD US) and Pinduoduo (PDD US) screen as 'Unloved' by global active Value managers.

<a href="https://www.smartkarma.com/entities/veolia-environnement-sa" target="_blank" data-smartkarma-citation="entities:21568:1" rel="noopener">Veolia Environnement SA (VIE FP)</a> rejects <a href="https://www.smartkarma.com/entities/suez-sa" target="_blank" data-smartkarma-citation="entities:21546:1" rel="noopener">Suez (SEV FP)</a>'s proposal to sell assets to Ardian and GIP.
<ul class="">
<li>Ardian and GIP have now offered to buy a new entity that would encompass Suez's water and waste units, as well as the international water and technology businesses (with c. €9.1 bn turnover, or 53% of Suez’s 2020 turnover), for €12.9 bn, roughly equivalent to Suez's current market value.</li>
<li>
On 20 March, the offer price for of all the relevant activities was increased to €20 per share (cum dividend).
<ul>
<li>
For an implied total equity value of €12,623.2 mn and a total implied EV of €25,093.6 mn.
</li>
<li>
This represents 1.5x EV/Fwd Revenue, 8.1x EV/Fwd EBITDA and 27.5x Fwd P/E.
</li>
<li>
As of 21 March, the transaction was unanimously approved by the Board of Suez. The offer is contingent on Veolia withdrawing its hostile bid across Suez and agreeing to divest some assets as part of a negotiated deal.
</li>
<li>Even so, the Ardian-GIP proposal "is not a counter offer" and is conditional on an agreement between Suez and Veolia.</li>
</ul>
</li>
<li>Suez is "offering" Veolia two solutions to deactivate some of the obstacles it has put in place to make the takeover more difficult:
<ul>
<li>let Ardian and GIP acquire the bits they are interested in (over half of Suez) and increase (Veolia's) offer from €18 to €20 per share, or</li>
<li>increase the offer to €22.5 per share.</li>
</ul>
</li>
<li>
Alternatively, the funds said that if Veolia withdraws its offer within six months, the consortium could consider the filing of a €20 per share (cum dividend) tender offer for the whole of Suez, subject to support of the Suez's Board, the Intersyndicale, and the public authorities; due diligence; and the consortium’s capacity to finance such an offer.
</li>
<li>
Suez has also threatened that if no agreement is reached by 20 April, it would go ahead with a plan that could potentially involve selling some assets in which Veolia is interested.
</li>
<li>
Veolia immediately rejected the proposal, saying it was sticking to its original plan. "The takeover offer made by Veolia remains irrevocable".
</li>
</ul>
<ul>
<li>
Suez's proposal is the last move in a bitter battle between both companies that is being deployed in courts and involves a lot of PR. The French government has so far failed to promote an amicable agreement.
</li>
<li>
Both Suez and Veolia seem ready to lock horns at the AGM, to be held in May or June, unless Veolia gets cold feet and decides Suez is not worth all the hassle. It is probably still soon for that, but if Veolia withdraws, it would still obtain an extraordinary profit of c. €382 mn (before taxes).
</li>
<li>
The share price of Suez has surpassed the €18 per share level of Veolia's bid and seems to be heading towards €20 per share of Ardian's proposal, which would materialize if Veolia withdraws its offer. Recommendation is LONG Suez, TP €20.
</li>
</ul>

Veolia Environnement SA (VIE FP) rejects Suez (SEV FP)'s proposal to sell assets to Ardian and GIP.

Ardian and GIP have now offered to buy a new entity that would encompass Suez's water and waste units, as well as the international water and technology businesses (with c. €9.1 bn turnover, or 53% of Suez’s 2020 turnover), for €12.9 bn, roughly equivalent to Suez's current market value.

On 20 March, the offer price for of all the relevant activities was increased to €20 per share (cum dividend).


For an implied total equity value of €12,623.2 mn and a total implied EV of €25,093.6 mn.


This represents 1.5x EV/Fwd Revenue, 8.1x EV/Fwd EBITDA and 27.5x Fwd P/E.


As of 21 March, the transaction was unanimously approved by the Board of Suez. The offer is contingent on Veolia withdrawing its hostile bid across Suez and agreeing to divest some assets as part of a negotiated deal.

Even so, the Ardian-GIP proposal "is not a counter offer" and is conditional on an agreement between Suez and Veolia.


Suez is "offering" Veolia two solutions to deactivate some of the obstacles it has put in place to make the takeover more difficult:

let Ardian and GIP acquire the bits they are interested in (over half of Suez) and increase (Veolia's) offer from €18 to €20 per share, or
increase the offer to €22.5 per share.



Alternatively, the funds said that if Veolia withdraws its offer within six months, the consortium could consider the filing of a €20 per share (cum dividend) tender offer for the whole of Suez, subject to support of the Suez's Board, the Intersyndicale, and the public authorities; due diligence; and the consortium’s capacity to finance such an offer.


Suez has also threatened that if no agreement is reached by 20 April, it would go ahead with a plan that could potentially involve selling some assets in which Veolia is interested.


Veolia immediately rejected the proposal, saying it was sticking to its original plan. "The takeover offer made by Veolia remains irrevocable".




Suez's proposal is the last move in a bitter battle between both companies that is being deployed in courts and involves a lot of PR. The French government has so far failed to promote an amicable agreement.


Both Suez and Veolia seem ready to lock horns at the AGM, to be held in May or June, unless Veolia gets cold feet and decides Suez is not worth all the hassle. It is probably still soon for that, but if Veolia withdraws, it would still obtain an extraordinary profit of c. €382 mn (before taxes).


The share price of Suez has surpassed the €18 per share level of Veolia's bid and seems to be heading towards €20 per share of Ardian's proposal, which would materialize if Veolia withdraws its offer. Recommendation is LONG Suez, TP €20.



Suez - Veolia Tussle: Ardian and GIP Enter the Fray

After months of repeated attempts to secure a friendly buyout, on the evening of Sunday 7 February, <a href="https://www.smartkarma.com/entities/veolia-environnement-sa" target="_blank" data-smartkarma-citation="entities:21568:1" rel="noopener">Veolia Environnement SA (VIE FP)</a> continued its 80's style public offensive and <a href="https://www.veolia.com/sites/g/files/dvc2491/files/document/2021/02/PR-Veolia-announces-filing-of-public-tender-offer-for-the-entire-share-capital-of-Suez-070221-ENG.pdf" target="_blank" rel="noopener">decided to formally launch a takeover offer to minority shareholders</a>,  for the 70.1% it does not own in <a href="https://www.smartkarma.com/entities/suez-sa" target="_blank" data-smartkarma-citation="entities:21546:1" rel="noopener">Suez (SEV FP)</a>.
<ul>
<li>at a price of € 18.00 cum dividend per share, for a total of €7.9 bn.</li>
<li>Following the presentation of the offer, Suez has reacted immediately saying that legally, Veolia could not present a takeover bid, as it would mean a break in the amicable commitment between both parties. Suez's chairman has said the offer is hostile and undervalues Suez.</li>
<li>First thing this morning, a French court has decided to stop Veolia's offer for the moment.</li>
<li>The French state, which was initially in favor of the Veolia project, seems to put some distance from the tussle in recent weeks and urges dialogue between both parties. “French capitalism can’t be a war of everyone against everyone,” French Finance Minister Bruno Le Maire said in an interview with Europe 1 radio. “Everyone has to be reasonable, wise and have an idea of general public interest because it is a question of thousands of jobs.”</li>
</ul>
If the tender offer is opened, it will require the merger control approval by the European Commission. Veolia reserves the right to waive the said condition.
Going hostile may have been the only way to proceed given the delaying maneuvers by Suez. As the chances to finding a friendly deal were increasingly dim, Veolia should sooner rather than later exercise the power of its majority.
<ul class="">
<li>In this case, the French government cannot act in the same fashion as in CoucheTard bid for Carrefour, because the companies involved are French. </li>
<li>A combined Suez-Veolia would have cost-advantage (economies of scale) and could greatly benefit from the energy transition programs to a low-carbon economy.</li>
<li>Nevertheless until that point, there is a long and winding road: getting rid of the poison pill (transfer of assets to a Dutch foundation), forbidding the disposal of the French water assets in the next four years, and Suez’s planned sale of key assets. Last but not least, softening the stance of French union who have so far sided with Suez's management in this trench war.</li>
<li>The clock is ticking for Suez and Veolia could potentially use its majority holding to unseat Suez's management at Suez’s AGM.</li>
</ul>
Veolia’s CEO said its offer will be open once it gets antitrust clearance, which should take 8 to 14 months (finalized in Q1 2022).
Gross spread is 5%. Reiterate long SZE FP, TP €18 per share.

After months of repeated attempts to secure a friendly buyout, on the evening of Sunday 7 February, Veolia Environnement SA (VIE FP) continued its 80's style public offensive and decided to formally launch a takeover offer to minority shareholders,  for the 70.1% it does not own in Suez (SEV FP).

at a price of € 18.00 cum dividend per share, for a total of €7.9 bn.
Following the presentation of the offer, Suez has reacted immediately saying that legally, Veolia could not present a takeover bid, as it would mean a break in the amicable commitment between both parties. Suez's chairman has said the offer is hostile and undervalues Suez.
First thing this morning, a French court has decided to stop Veolia's offer for the moment.
The French state, which was initially in favor of the Veolia project, seems to put some distance from the tussle in recent weeks and urges dialogue between both parties. “French capitalism can’t be a war of everyone against everyone,” French Finance Minister Bruno Le Maire said in an interview with Europe 1 radio. “Everyone has to be reasonable, wise and have an idea of general public interest because it is a question of thousands of jobs.”

If the tender offer is opened, it will require the merger control approval by the European Commission. Veolia reserves the right to waive the said condition.
Going hostile may have been the only way to proceed given the delaying maneuvers by Suez. As the chances to finding a friendly deal were increasingly dim, Veolia should sooner rather than later exercise the power of its majority.

In this case, the French government cannot act in the same fashion as in CoucheTard bid for Carrefour, because the companies involved are French. 
A combined Suez-Veolia would have cost-advantage (economies of scale) and could greatly benefit from the energy transition programs to a low-carbon economy.
Nevertheless until that point, there is a long and winding road: getting rid of the poison pill (transfer of assets to a Dutch foundation), forbidding the disposal of the French water assets in the next four years, and Suez’s planned sale of key assets. Last but not least, softening the stance of French union who have so far sided with Suez's management in this trench war.
The clock is ticking for Suez and Veolia could potentially use its majority holding to unseat Suez's management at Suez’s AGM.

Veolia’s CEO said its offer will be open once it gets antitrust clearance, which should take 8 to 14 months (finalized in Q1 2022).
Gross spread is 5%. Reiterate long SZE FP, TP €18 per share.

On 7 January, <a href="https://www.smartkarma.com/entities/veolia-environnement-sa" target="_blank" data-smartkarma-citation="entities:21568:1" rel="noopener">Veolia Environnement SA (VIE FP)</a>  increased its bear-hug on <a href="https://www.smartkarma.com/entities/suez-sa" target="_blank" data-smartkarma-citation="entities:21546:1" rel="noopener">Suez (SEV FP)</a> by sending an open letter to the Board of Suez on 7 January and appealing to shareholders at the same time.
The offer, which is not formal, values ​​Suez at €11.3 bn, but Suez still considers it hostile and is trying to put pressure, while the French government continues to quietly mediate for an agreement.
Veolia intends to file a voluntary offer at €18 per share - the same price at which it acquired a 29.9% stake from Engie-, which values ​​100% of Suez at c. €11,252 mn, an implied EV of c. €22,180 mn.
<ul>
<li>The price tag for the remaining stake is €7,887.5 mn.</li>
<li>This represents a 13.2% premium to the VWAP over the 3 months prior to 7 January, and a c. 8.4% premium to the prior trading session.</li>
<li>3.4x EV/Fwd Revenue, 19.9x EV/Fwd EBITDA and 33.1x P/Fwd EPS (source: Capital IQ consensus).</li>
<li>The purchase price will be reduced by any distribution or adjusted to take to account of any capital transaction.</li>
</ul>
The core of the dispute remains unresolved, and to top it off, there is not yet any agreement between the parties involved as to when that will happen.
Regarding the transfer of the French water assets of Suez to a Dutch foundation, Veolia now has to reverse that move. Veolia could exercise its voting power at the next Suez's AGM (likely next summer) and replace the Board of Suez. 
Independently of what happens, Veolia will remain a majority shareholder unless it can be bought out at a price higher than €18 per share. The future does not look pretty for Suez's Board. Both parties should reach an agreement before the AGM.
Recommendation is LONG Suez, TP €18.
<ul>
<li>Suez is trading at a gross spread to the offer of c. 7.7%, which seems adequate given the hostile situation, the time deals in the sector take to complete (all relevant authorisations could take between 12 to 18 months, according to Veolia).</li>
<li>The share price of Suez is slowly but steadily approaching €18.</li>
</ul>

On 7 January, Veolia Environnement SA (VIE FP)  increased its bear-hug on Suez (SEV FP) by sending an open letter to the Board of Suez on 7 January and appealing to shareholders at the same time.
The offer, which is not formal, values ​​Suez at €11.3 bn, but Suez still considers it hostile and is trying to put pressure, while the French government continues to quietly mediate for an agreement.
Veolia intends to file a voluntary offer at €18 per share - the same price at which it acquired a 29.9% stake from Engie-, which values ​​100% of Suez at c. €11,252 mn, an implied EV of c. €22,180 mn.

The price tag for the remaining stake is €7,887.5 mn.
This represents a 13.2% premium to the VWAP over the 3 months prior to 7 January, and a c. 8.4% premium to the prior trading session.
3.4x EV/Fwd Revenue, 19.9x EV/Fwd EBITDA and 33.1x P/Fwd EPS (source: Capital IQ consensus).
The purchase price will be reduced by any distribution or adjusted to take to account of any capital transaction.

The core of the dispute remains unresolved, and to top it off, there is not yet any agreement between the parties involved as to when that will happen.
Regarding the transfer of the French water assets of Suez to a Dutch foundation, Veolia now has to reverse that move. Veolia could exercise its voting power at the next Suez's AGM (likely next summer) and replace the Board of Suez. 
Independently of what happens, Veolia will remain a majority shareholder unless it can be bought out at a price higher than €18 per share. The future does not look pretty for Suez's Board. Both parties should reach an agreement before the AGM.
Recommendation is LONG Suez, TP €18.

Suez is trading at a gross spread to the offer of c. 7.7%, which seems adequate given the hostile situation, the time deals in the sector take to complete (all relevant authorisations could take between 12 to 18 months, according to Veolia).
The share price of Suez is slowly but steadily approaching €18.


France

Veolia Environnement SA operates utility and public transportation businesses. The Company supplies drinking water, provides waste management services, manages and maintains heating and air conditioning systems, and operates rail and road passenger transportation systems.

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Veolia Environnement SA (VIE FP)

Suez - Veolia: Peace Pipe

After two offer price increases (over 32% vs initial offer), this agreement should be considered final and a rock solid trade, albeit an unexciting...

Jesus Rodriguez Aguilar

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With Value funds capturing some long awaited outperformance this year, we analyse the current holdings set up among the active Global Value funds...

Steven Holden

Suez - Veolia Tussle: Ardian and GIP Enter the Fray

The share price of Suez has surpassed Veolia's offer price and seems to be heading towards the €20 per share of Ardian's proposal, which would...

Jesus Rodriguez Aguilar

Veolia - Suez: Enough Is Enough

Going hostile may have been the only way to proceed, as the chances to sealing a friendly deal were increasingly dim, Veolia should sooner rather...

Jesus Rodriguez Aguilar

Veolia Steps up Pressure on Suez

Recommendation is LONG Suez, TP €18. Suez is trading at a gross spread to the offer of c. 7.7%, adequate given the hostile situation and the time...

Jesus Rodriguez Aguilar

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