Suez Under Pressure as Veolia Moves Ahead With Takeover Plan

(Bloomberg) -- French water utility Suez SA and its suitor Veolia Environnement SA came under increasing political pressure to end hostilities and begin talks on a friendly takeover after the latter snapped up a 29.9% stake.

Veolia's successful bid for Suez shares from Engie SA set the stage for what could be a long and acrimonious corporate battle for full control. Suez, which has pushed back against Veolia ever since its initial approach in August, reaffirmed Tuesday it will do all it can to avoid a “creeping takeover,” while the French government called for a cease-fire.

“I will never relax pressure to ensure Suez and Veolia find an agreement,” Finance Minister Bruno Le Maire said on France Info radio. While talks between the companies to find a friendly solution came “within a few centimeters” of a breakthrough in recent days, “we've stumbled against the intransigence” of Suez and the “hastiness” of Veolia, he said.

Once it has completed the 3.4 billion-euro ($4 billion) purchase of Engie's Suez stake, Veolia plans to file a public tender offer at 18 euros a share for the rest, after receiving regulatory consent -- which could take as long as 18 months. Veolia insists the public offer will only proceed once it's been favorably received by Suez's board -- possibly after its general shareholder meeting.

Suez rose as much as 5.6% in Paris trading on Tuesday, and was up 3.5% at 15.94 euros as of 11:21 a.m. local time. Veolia rose 0.2%, while Engie added 1%.

A full takeover would create a global giant in waste treatment and environmental services. But Suez remains fiercely opposed to what it calls Veolia's “hostile” approach, and reiterated on Tuesday that it would use all the means at its disposal to protect stakeholders' interests.

The Finance Ministry, which owns more than a fifth of Engie and had pushed for a friendly outcome, voted against the sale of the stake.

Bid Flexibility

Veolia said it reserves the right to change the public offer price -- or decide against a tender offer entirely -- in the event of any asset disposals, acquisitions or other events that could affect Suez's balance sheet.

Suez had been pushing a rival approach from Ardian SAS as a way to fend off Veolia, but the private-equity firm said Monday that it wouldn't make a bid.

Suez also created a so-called poison pill to potentially block the sale of its French water business, a divestment contemplated by Veolia to resolve antitrust issues. Veolia has since offered to divest some international water assets to the future buyer of the French unit in a bid to bring Suez on side.

For Engie, the sale of the Suez stake will generate a pretax capital gain of 1.8 billion euros, to be booked in 2020 financial results. The proceeds will enable the utility to “boost its capacity to invest in renewable energies and infrastructure -- the two growth areas it is focusing on,” Engie Chairman Jean-Pierre Clamadieu said.

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