Veolia-Suez merger
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NOVEMBER 19, 2020
The President of the Nanterre Commercial Court Forbids the Irrevocability of Suez’s "stichting-foundation" in the Netherlands
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We have a single objective, through a single industrial project, which is a full merger of Suez and Veolia, two companies at the heart of environmental changes with complementarities at all levels, which together will make it possible to form the world champion of ecological transformation. To do this, the operation we have proposed has two phases: the acquisition of the shares of Engie, which was an immediate seller, then a takeover bid to hold 100% of the capital, as quickly as possible. This first phase materialized through a significant investment, we are now focused on the realization of the second phase. We will not give up because it is a unique industrial project, the combination of 2 groups at the heart of environmental challenges, whose complementarities at all levels will allow to create the world champion of ecological transformation.
We will not limit ourselves to a 29.9% financial stake, which represents a very significant cash outflow for us! It would be pointless, and besides, would make no industrial sense whatsoever. We have said it and confirmed it in all our communications and press releases.
Our unique objective is a tender offer on 100% of the share capital of Suez, as soon as possible. No alternative scenario is being considered. Our project is very mature and we have already started to provide antitrust authorities with the information required to proceed with the analysis of the transaction.
We have also decided to further strengthen our intentions regarding our tender offer. We will submit our voluntary tender offer at a price of 18€ per share (coupon attached) as soon as a combination agreement is concluded between Suez and Veolia following usual standards, i.e. providing that:
The tender offer will include a condition precedent relating to the approval of the relevant antitrust authorities. Our goal is to obtain the EU and French clearances in phase 1, within 12 months.
As you know, despite our numerous efforts and attempts at resuming discussions, Suez’s Board of Directors remains uncooperative.
Therefore, given our reinforced commitment regarding the tender offer at 18€ per share (coupon attached), the only remaining obstacle between the shareholders and the submitting of our Offer remains the current Board of Directors of Suez. As a reminder, the €18 per share offer will be subject, as is usually the case, to the obtaining of the relevant antitrust clearances.
Veolia will file its proposed public tender offer at the price of € 18 per share (coupon attached) once a merger agreement has been concluded between Suez and Veolia:
Once these conditions are met, Veolia will be able to submit its offer, which will simply be subject to the condition precedent of obtaining the approval of the relevant competition authorities as is usual in this type of transaction.
Our intent is to launch a voluntary tender offer as soon as possible at a price of 18€ per share (coupon attached).
According to stock market regulations, once our offer is submitted, the price of 18€ per share (coupon attached) becomes irrevocable.
Our tender offer will include the usual adjustments in case of dividend distribution and protections provided for in the AMF general regulations in case of a change in Suez consistency, nothing more. All these matters will be covered in the combination agreement with Suez which will include the usual commitment to manage the Suez Group following ordinary course of business, without any other asset divestments than the ones mandated for antitrust requirements.
If, before we submit our Offer, Suez decides to proceed with a significant or a strategic asset divestiture without prior consultation of the shareholders, we would take all the necessary steps from a legal standpoint to block such a transaction in accordance with Suez’s corporate interest with the aim of being able to avoid a revision of the price of the tender offer and allow its filing. The engagement of the shareholders of Suez is obviously key to allow us to quickly submit a tender offer.
No, dividends are included in the proposed 18€ share price.
This is necessary to keep equality among shareholders, Engie having cashed in 18€, but no dividends on top.
The transaction that we have proposed has two phases: the acquisition of the shares of Engie, which was an immediate seller, then a takeover bid to hold 100% of the capital, as quickly as possible.
Since our reinforced commitment regarding the launch of our Offer, we have moved from a long and uncertain period before we could launch the bid, to a delay as short as possible to secure the offer price for the shareholders.
Securing the 18€ price per share (coupon attached) therefore depends on when a combination agreement will be signed between Veolia and Suez, be it before or after a GM of shareholders.
Finally, with interest rates being very low, the discounting of the price over a few weeks or months is likely not to be too significant.
The timing to launch the offer relies entirely on the Board of Directors of Suez and possibly on a GM of shareholders which would, if need be, draw the conclusions of Suez’s persistent refusal to open discussions with us.
Once the offer has been filed, antitrust approvals will remain a condition precedent, but we are working with the goal to obtain such approvals in Phase 1.
We have been working with the relevant authorities since mid-August and are about to circulate the relevant pre-filings.
Absolutely not, no slowdown, no delay.
The decision of the judicial court of Paris has temporarily suspended the effects of the acquisition of the 29.9% block and cannot delay the overall schedule of the transaction.
The acquisition of the 29.9% block is not being reviewed, the judgment simply requires that the relevant employee representation bodies from Suez be informed on the transaction. We have already sent a very thorough set of documents to the relevant parties for them to quickly organize these information proceedings. The information-consultation process is an obligation directed towards Suez’s management, not Veolia’s. This process is framed by a compulsory timeline of 2 months and we believe that Suez should convene its works council - “CSE” - very soon, which would allow starting the countdown.
Yes.
We know how to untie it. However, considering our reinforced intention to launch our Offer as soon as we have signed a merger agreement with Suez, the Board of Directors of Suez will have to unwind it itself, so that we can launch our Offer immediately thereafter.
We have heard the shareholders of Suez who have asked us to launch our bid as soon as possible. We have told them that we were ready to do that: given our reinforced commitment regarding the launch of our Offer, the only remaining obstacle between the shareholders and the submitting of Veolia’s offer at 18€ per share (coupon attached) is the Board of Directors of Suez.
As long as Suez is managed following ordinary course of business according to the combination agreement we will both sign, our offer will remain at 18€ per share (coupon attached).
If Suez decides to proceed with a significant or strategic asset divestiture without prior consultation of the shareholders, we would take all the necessary measures from a legal point of view to block such a transaction in accordance with Suez’s corporate interest with the aim of being able to avoid a revision of the price of the tender offer and allow its filing.
Our project is a growth project, to create the world champion of the ecological transition, not a dismantling one, which Suez is currently proposing as you can see from the numerous recent disposals conducted by the company.
Yes, if we submit our Offer immediately after the signing of the combination agreement with Suez, the Offer will simply be subject to a condition precedent relating to the obtaining of the antitrust approvals, as usual in these kinds of deals.
Our goal is to obtain the relevant antitrust approvals in Phase 1. The necessary remedies have already been identified and we consider they will enable a phase 1 approval.
No, there is no reason to think the antitrust authorities could block the transaction. We are present in different geographies. The necessary remedies in the relevant countries, including France, have already been identified and will be organized to obtain the required approvals through a smooth process.
We have already reiterated our willingness to open discussions with Suez’s Board of Directors and to launch our Offer. However, the only remaining hurdle to the Offer remains Suez’s Board of Directors.
If despite today’s progress, the Board of Directors of Suez is still refusing to start a dialogue with us, then, there will always be the possibility to consult the shareholders who have a legal right to influence this transaction. Suez’s shareholders have already let us know that they would exercise these rights and their votes in order to make sure the Board of Directors of Suez, before or after a GM of shareholders, concludes a combination agreement with Veolia.
Under such an assumption, shareholder engagement will be key.
Suez minority shareholders have the possibility to ask the Commercial Court to call for a GM of Suez if they are not satisfied by the positions of or by the timing resulting from the positions of Suez regarding Veolia’s project.
We have favored negotiation and dialogue, but given the persistent refusal of Suez to start any discussions, we would understand the shareholders’ choice to demand the calling of an anticipated General Meeting of shareholders.
If necessary, Veolia will support such an initiative as well as resolutions allowing to protect our patrimonial rights as well as those of all the other shareholders of Suez. Our intention remains to launch a tender offer on 100% of the share capital of Suez at 18€ per share (coupon attached). Veolia considers that shareholder engagement towards this goal is critical while the image of the Paris market place is at stake.
According to European law, we can exercise our voting rights to protect the value of our investment, subject to obtaining a waiver from the European Commission. We consider that the current circumstances fully come under the scope of the possible waiver.
The effects of the October 9 decision to suspend the effects of our acquisition of 29.9% of Suez are only temporary, and the acquisition cannot be revoked. Furthermore, all the relevant information to consult the employee representation bodies have already been shared with Suez. This process being governed by a strict timeline, we will recover our voting rights when the consultation of employee representation bodies will be completed, and on February 5th 2021 at the latest.
The question of the dismissal of the Board of Directors of Suez is to be resolved by the shareholders in the face of the persistent blocking by Suez.
Suez’s course of action since the beginning of September, notably the blocking of the transfer of the French water activities through the Dutch Foundation, constitutes a breach of the principle of free tender offer for French listed companies. We consider that allowing shareholders to express their views constitutes a major challenge for the credibility of the Paris stock market and its attractiveness towards institutional shareholders.
In early 2012, Mr. Frérot initiated a transformation plan for Veolia which has led to a consistent outperformance of Veolia’s share price vs the CAC 40 and Suez, as evidenced by the chart above.
After the 2012-2015 turnaround, Veolia has embarked on a profitable growth strategy based on 2 pillars: resuming top line growth largely organic, complemented by bolt-ons and continued efficiency gains with €1bn of cost savings between 2016 and 2019.
That strategy has led to a significant improvement in Return on Capital Employed : from 4.4% in 2012, to 6.8% in 2015 and 9.0% in 2019. By contrast, Suez’s Return on Capital Employed has declined by 300 bp, from 7.9% in 2015 to 4.9% in 2019.
Meanwhile and in our opinion, Suez is stuck with a strategy that hindered both (i) its financial growth with EBIT growing at 1.7% vs. 7.0% at Veolia over the 2015-2019 period and a decreasing net income compared to Veolia’s 10.8% growth over the same period, and (ii) shareholder value with share price dropping from c.16€ in January 2015 to c.10€ in July 2020.
Furthermore, Veolia has consistently maintained a very healthy balance sheet, reducing its leverage ratio from 3.0 times in 2015 (including hybrid bond) to 2.7 times in 2019 (including IFRS 16 impact). On the other hand, on the back of a questionable strategic plan, and despite numerous disposals, Suez net financial debt including hybrid has increased from €9.1bn to €11.9bn leading to an increase in their leverage ratio from 3.3 times in 2015 to 3.7 times in 2019 (including IFRS 16).
Suez’s management has placed a golden share of the company’s French water activities in a trust in the Netherlands in an effort to prevent Veolia’s bid. The structure cripples shareholder control and deprives investors of an amount we estimate at several hundred million euros in total value.
The Dutch trust obstructs investors’ legal rights of oversight. It may also be used as leverage for the current board of directors in case shareholders choose to replace some of its members. If not removed promptly, the Dutch trust will be challenged before the courts.
“We will not hesitate to hold the members of the Board liable, both civilly and criminally, for
what we consider already characterized misconduct.”
Investment fund CIAM’s letter to Suez’s board of directors, Oct. 20th 2020
Despite Veolia’s intention to offer 18 € per share, the highest price for 5 years, Suez’s Board of Directors refuses to consider our project. 18 € is a full price, and represents a significant premium to the share price even excluding Covid-19 impacts. It represents a very strong opportunity for you and you could benefit from it rapidly, should the Suez Board of Directors eventually agree to discuss with Veolia.
Despite the many attempts from Veolia’s Chairman and CEO Antoine Frérot to present his project and offer to the board of directors of Suez and until now, Philippe Varin and Bertrand Camus have constantly refused to consider it.
“I believe it to be in the interest of both of our companies that our merger be conducted in a constructive and respectful manner.”
“Dialogue always has virtues, and I have trouble understanding Suez’s persistent refusal to discuss our respective positions and points of view.”
“Engaging in dialogue would have allowed both our companies to better understand mutual disagreements and start finding answers.”
> Given the current circumstances leading to a refusal of any dialogue with Veolia, the board of directors of Suez appears to be now the only obstacle blocking a full offer at 18 € per share to all shareholders of the company.
Among other possible initiatives and as a Suez shareholder, you have a legal right to influence the company’s future by requesting the convening of a General Meeting (GM).
Your vote will be critical and as a shareholder, you have a key role to play in such a GM.
Requesting the convening of a GM would be a critical step to review the current composition of a Suez’s Board of Directors which prevents its shareholders from value creation, and pave the way for an accelerated timeline yielding concrete benefits for all stakeholders.
For more information, please contact:
Georgeson
Matthieu Simon-Blavier
msb@georgeson.com
Veolia Group Media Relations
Sandrine Guendoul
Tel +33 6 25 09 14 25
sandrine.guendoul@veolia.com