IGE+XAO (IGE.PA) – Expected Better Offer – Upside TBD

Current Price: €262

Target Price: TBD

Upside: TBD

Expiration date: Q4 2021

Press release

This idea was shared by Paul.

 

Schneider Electric, French mega-cap energy management and automation company, intends to launch tender offer for all not already owned shares of IGE+XAO at €260/share. The offer is expected in October'21. Schneider Electric currently owns 68% of common shares, 78% of voting rights and intends to reach control of 90% of common shares in order to squeeze out the remaining shareholders. However, two large minority shareholders of IGE, Gay-Lussac Gestion and Orfim, with combined ownership of 10.5%, are unsatisfied with the price and will not tender. This effectively blocks Schneider Electric from reaching the squeeze-out threshold and increases the chances that the price might get adjusted upwards to persuade minority shareholders to tender.

Both companies are collaborating on various projects. Schneider has been a major shareholder of IGE for several years and has already tried to acquire IGE back in 2017, but only managed to accumulate the current 68% stake. This second attempt indicates strong intentions to take IGE private.

The downside seems well protected as shares trade just slightly above the tender price. In the worst-case scenario, if Schneider withdraws the tender altogether, the downside to pre-announcement price (July 20th) is 14%. However, shares are unlikely to fall to this level now that Schneider and IGE major shareholders have clearly stated that they believe IGE is worth north of €260:

We have decided not to tender our shares, judging that a 260€ price does not reflect a fair value of the potential of the company. [...] IGE+XAO also benefits from a strong momentum in all of its business units, whether in France or internationally. The company’s revenue grew 18.4% in the second quarter, and net profits rose to 3.7M€, a 13.7% increase year-on-year. We remain extremely confident on the growth prospects and ability of IGE+XAO to continue gaining market share.

Interestingly, after the previous Schneider tender offer (2017) for IGE closed on the 19th of February 2018, the share price has gone up and has only retested the previous offer zone once in late 2018 (+98% increase in share price as of now).

 

Previous Tender Offer

Schneider Electric has already tried to acquire the company in November of 2017, when the squeeze-out threshold in France was still 95%. This attempt failed, because the offered share price of €132 was not enough for minority shareholders (Gay-Lussac was also among the opposers). Schneider still managed to acquire almost 70% of the company. A short while later, in 2018, France reduced the percentage of shares required for a squeeze-out from 95% to 90%. A more favorable threshold and the fact that Schneider already owns a substantial amount of shares indicates that this time they are less likely to back down from taking IGE private. Worth noting that in France, the buyer can initiate another tender immediately after the previous one gets closed - no waiting period is required.

 

Valuation

Founded in 1986, IGE+XAO develops, sells, and provides maintenance for Computer-Aided Design and Product Life Management software. The business remained resilient during 2020, while the recent H1'21 results showed continuing stable growth with a 12% increase in revenues YoY, and 14% in net income YoY. The company has almost no debt.

Historical performance and the offer valuation:

This transaction comes at a valuation of 25xEBITDA, which seems to be somewhat below where the similarly-sized peers are trading. In comparison to peers, IGE+XAO also has a much stronger balance sheet.

 

2 COMMENTS

  1. Tom

    I read a summary of French squeeze out rules. Can you tell me if my understanding is correct? If the bidder acquires enough shares to hold more than 90% of the company, the remaining shares are purchased at the same price as the tender as long as the target company has hired an independent expert that considers the price fair. There is not equivalent to US dissenter rights under which minority holders are required to give up their ownership but he price is determined via a court process.

    1. Paul

      Hi Tom,
      Yes, you are correct. In this case, the majority shareholders will not tender their shares at current prices, therefore a higher offer should follow. With a higher offer the company could reach the 90% treshhold and minority shareholders would get same price as the last (and higher) tender offer.

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