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.

 

21 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.

  2. Tom

    Paul,

    Schneider released a press release on September 30 that included a draft of the offering document for the tender. It included a section that indicated that under certain conditions the stock could be delisted from Euronext Paris even if the 90% threshold for the squeeze out is not achieved (1.2.6.2). Are you familar with the rules that would allow this to happen? How likely is it to happen?

    The PR also included a schedule of the upcoming stages of the process: October 22 – Draft reply by Company including report of independent appraiser, November 9 – AMF approval of the offering, November 11 – Offer opens, November 24 – Offer closes, November 29 – Offer results are published by AMF, December 2 – tender is settled. If the tender is successful, the squeeze out will follow shortly after the closing of the offer.

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    1. Lukas

      “If the aforementioned squeeze-out procedure is not implemented, the Offeror reserves the right to ask Euronext Paris, on behalf of the Company, to delist IGE+XAO shares if the conditions provided for by Euronext Paris market rules are met.”

      So Schneider can ASK. But if I understand correctly, the conditions to delist if the tender fails are:

      “if applicable law does not provide for squeeze-out, a public offer is implemented (“the delisting offer”), subject to the following conditions:
      (i) it provides evidence that over the last 12 (calendar) months before the delisting application, the total value traded on the Issuer’s Shares represents less than 0.5% of the Issuer’s market capitalization;
      The market capitalization used for the purposes of such computation shall be observed at the end of the last calendar month before the filing of the delisting application and the total traded value shall be computed over a retrospective period of 12 months starting from the same month-end date. The total traded value includes the trades carried out on the central order book of the Euronext Paris regulated market and the off-order trades deemed executed on the same regulated market. Those specific periods, within the said 12-month period, where some public tender offers were taking place (« offer period » with the meaning of AMF general regulations) are disregarded for the purposes of such computation;
      (ii) it files the application after a delay of 180 (calendar) days has elapsed since any previous public tender offer (i.e. prior to the « delisting offer »);
      (iii) it provides evidence that the offeror has committed, for a period of 3 months following the end of the delisting offer, to acquire at the same price as such delisting offer the Shares of remaining shareholders who have not tendered them under the delisting offer; and
      (iv) it provides evidence that the offeror has committed, for a transitional period of one financial year following the year when delisting takes place, to publishing any crossing up above or below the squeeze-out threshold in applicable law of the delisted Issuer’ Shares or voting rights attached thereto.
      it being understood that all the aforementioned commitments shall be duly described in the delisting offer document.
      The delisting offer shall consist of a cash or exchange public tender offer, provided that any exchange offer includes a cash option, or any other public tender offer under equivalent regime if the AMF is not the competent authority for tender offer supervision.”

      So I believe that the likelihood of this happening is low

      1
  3. Tom

    Also, recently, the Company filed its draft response to the offer. Not surprisingly, the Company’s response supports the tender offer (Schneider controls the Board).

  4. tony

    What will happen if the shares get delisted? Is there an OTC market in France of some sort or will we get stuck?

    1. MS223

      According to Tender offer document that has been filed, (1.2.5) delisting would only happen if squeeze-out procedure is not implemented. Offeror will have 3 months period after end of the offer to implement squeeze-out, also only if it owns not lees than 90% share capital and voting rights.

    2. Ilja

      You can find more info on France’s M&A rules in the link below. I think the delisting (1.2.6.2) clause in the tender document refers to some kind of exception (quote from M&A overview) – “if a squeeze-out is not available under the law applicable to the target” – then the buyer that has reached 90% can delist shares. But even then, there are certain conditions to be satisfied (Lukas comment above) including 3 months time window after the offer, etc. So if the buyer reaches 90% and squeeze-out is unavailable (not sure how likely that is), there should be still plenty of time to sell shares in the open market after the delisting.

      Another question is, whether it’s possible for the buyer to delist shares even if the 90% condition is not reached – e.g. the buyer gets 75%. I think in the UK a shareholder that owns 75% can call a special meeting and singlehandedly initiate a delisting (buyers use it as leverage in similar takeovers). I’m not sure the same is applicable in France. But even if it is, it will be possible to just sell shares in the open market after the offer ends.

      Paul, maybe you have any insight into this?

      https://uk.practicallaw.thomsonreuters.com/4-502-1646?transitionType=Default&contextData=(sc.Default)&firstPage=true

      1. Paul

        Schneider Electric released the following statement:

        “In accordance with the provisions of Article L. 433-4 II of the French Monetary and Financial
        Code and Articles 237-1 et seq. of the AMF General Regulation, in the event that, upon completion
        of the Offer, the number of I.G.E.+X.A.O. shares not tendered by the minority shareholders (with
        the exception of the treasury shares held by I.G.E.+X.A.O.) does not represent more than 10% of
        2
        the share capital and voting rights of I.G.E.+X.A.O., Schneider Electric Industries SAS intends to
        request the AMF to implement, within three (3) months following the closing of the Offer, a
        squeeze-out procedure in order to have transferred to Schneider Electric Industries SAS the
        I.G.E.+X.A.O. shares not tendered to the Offer (other than the treasury shares held by
        I.G.E.+X.A.O.), in exchange for a compensation per share equal to the Offer price, following
        adjustment as the case may be.”

        I would say the risk of a delisting is off the table. If the 90% are reached, they will go for the squeeze-out.

        1
  5. Paul

    Well, i am not aware of the possibilty to delist the company on the buyers behalf if they own less than 90%. However, I am no true expert in French law.
    But assuming IGE would iniate such a delisting by themselfes, it might be possible. I have seen something like this in Germany, where a controling party, close to the company, buys stock and the company announces to delist as they cant squueze out minority holders. They want to make holding their stock less attractive when having to release less info as an OTC stock.
    But there is always a large enough timeframe to sell the stock.
    Also, doing things this way, would be very bad shareholder governance. I don’t think Schneider would want to get that extreme.

  6. Ilja

    Tender results are out. Schneider collected 83.93% of IGE+XAO’s share capital and 87.68% of its voting rights. Will be interesting to see Schneider’s next move. Either it raises the price and tries to reach 90% or it simply keeps the stake and maybe tries to delist the company after a few months? It’s interesting that nothing was mentioned in the PR so far.

    https://live.euronext.com/sites/default/files/cpr03_lesechos_16165_1027643_IGEXAO__PR__Results_of_the_simplified_tender_offer__29112021.pdf

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  7. Tom

    Does anyone know what restrictions there are on Schneider commencing another tender for the remaining shares? Does Schneider need to wait before purchasing additional shares? At this point it seems that the premium that would need to be paid by Schneider to acquire an additional 6.07% would be almost inconsequentual to Schneider. Even at a 30% premium to the 260 price, the incremental cost (above the 260) would only be €6mm. To a €90 billion market cap company €6mm is less than pocket change.

    Any thoughts on Schneider’s next move?

  8. Ilja

    There are no restrictions on Schneider making another tender:

    “An unsuccessful bidder can make another offer for the same securities immediately following the publication of the results of the initial tender offer.”

    https://uk.practicallaw.thomsonreuters.com/4-502-1646?transitionType=Default&contextData=(sc.Default)&firstPage=true

    Additionally, Gay Lussac Gestion issued a press release on the 2nd of December stating that he did not tender and the €260/share does not reflect the fair value of IGE+XAO.

    https://www-gaylussacgestion-com.translate.goog/communique-de-presse-actionnaire-de-long-terme-digexao-a-travers-plusieurs-de-ses-fonds-gay-lussac-gestion-napportera-pas-ses-titres-a-loffre-publique-dachat-si/?_x_tr_sl=auto&_x_tr_tl=en&_x_tr_hl=lt

  9. Tom

    I can’t seem to get access to the Gay Lussac PR. I’d greatly appreciate it if someone could cut and paste it.

    Thanks,

    Tom

    1. Paul

      This is what DeepL gave me, the press release is in french:
      “As a shareholder of IGE+XAO since 2014, Gay-Lussac Gestion owns, to date, approximately 3.5% of the company’s capital through
      of the company’s capital through several of its funds2.
      In order to defend the interests of its of its unitholders, Gay-Lussac Gestion recalls that it had already not contributed its shares during the takeover bid initiated by SEISAS in 2017, at a price of 132€ per share. Today, Gay-Lussac Gestion still believes that a price of 260€ would not reflect the fair value and the potential of IGE+XAO.
      In this context, Gay-Lussac Gestion decides that it would not contribute its shares at the envisaged price of
      of 260€ per share.”

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  10. Paul

    IGE+XAO did not receive a new offer yet. However, Schneider might pursue another strategy and merges the two companies. They said that if a squeeze-out cannoot be be carried out after the offer in 2021 they would intend to merge the two companies in 2022.

    However this potential merger would be further away. Given that the last annual meeting was on 26 April 2021, a possible announcement that they intend to merge should follow in the next 4 month or so. Merging would be a plausible way for Schneider to force a close and would need approval at the annual meeting.

    I think a possible merger will still generate a profit after all, but the time frame is longer than I anticipated, diluting the IRR.
    Of course, the upside in case of a merger depends on the conditions. In a press release they said “… In particular, the merger plan would be submitted to the general meetings of shareholders of Schneider Electric (or another Group entity) and IGE+XAO, and to the AMF in accordance with Article 236-6 of its general regulation… The merger ratio would be based on a multi-criterion approach applied at the time the merger is proposed …””
    Given that the outstanding shares are pocket change for Schneider, I expect a possible offer whether in cash, stock or a combination of both to be satisfying.
    The situation might be less attractive now (due to a longer time horizon), as such announcement could be 4 month away at worst, not including the risk of a merger spread.

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  11. Ilja

    Schneider has returned with a merger plan and a consideration of 5 Schneider Electric shares per 3 IGE shares. At current prices, the consideration stands at around €241/share – below the previous offer and also below the current IGE share price. The plan will require IGE shareholder approval scheduled for the 5th of May. I expect IGE shareholders are not gonna be overly happy about this.

    Any further thoughts on this, Paul?

    https://www.se.com/ww/en/assets/564/document/310281/financial-release-merger-of-IGE-XAO-into-schneider-electric.pdf

    1. snowball

      I believe that Schneider must have talked with the hold-out shareholders and gain their support before proposing this plan, because it is very complex and resource-consuming to prepare a share swap scheme.
      These shareholders may prefer this share swap offer (even though its value is lower than the previous cash offer) because they don’t want to realize capital gains.
      I think approval is likely.

    2. Paul

      I think snowball is right here, approval is likely.
      Unfortunately, this merger did not work out as I expected. Because the company based its ratio on 12/31/21 financials, all potential gains evaporated.

  12. Tom

    It’s interesting that the ratio is based upon the companies financials as of 12/31/21. Based upon YE prices, the 5/3 ratio would have resulted in a value of 288 euros. Unfortunately, Schneider has fallen 20% since then. Seems odd to me that the Board of IGE would agree (on 2/16) to a lower price when the higher price was not accepted and didn’t at least leave a cash election equal to the old offer, but for me this is a lost cause.

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