Clearing up or making in pretty bad shape? the board of french water and waste group veolia hopes maintain things tidy in its pursuit of regional competing suez. chairman and chief executive antoine frrot this week stepped-up their promotion, refusing to exclude a hostile strategy.

A bargain would create a nationwide winner in a sector poised to benefit from growing ecological regulation. but competition concerns endured in the form of a previous package. they stay a hurdle.

Couple of regions will be excluded from the pairs combined geographical footprint. regulators will concentrate on the powerful presence in france. problems killed merger speaks between your two teams in 2012. as a remedy, veolia features prearranged infrastructure investor meridiam as a buyer for suezs french water assets.

Chart showing eu27 municipal waste therapy trends and target

Veolia offers 15.5 per share for 29.9 percent associated with suez shares held by previous parent engie, valuing the entire company at 21bn, including debts. mr frrot hopes to capitalise on a strategic analysis at engie. if effective, a tender throughout suezs stocks would follow.

The bid values suez at 26 times two-year forward earnings, well over the 17 times average that shares exchanged previously 5 years. however notwithstanding a 40 % premium to its three-month undisturbed price, suez has actually begun readying its defences, saying a deal would destroy value. engie in addition has made murmurs it thinks the offer is just too reduced.

Chart showing profits per share estimates have actually fallen significantly because the beginning of this past year

Cost savings could justify an increased price. veolia thinks a deal could create 500m of annual savings within four many years. those are on top of present cost-cutting measures targeting 1bn of savings by 2023. taxed and capitalised cost savings cover the premium by more 1bn. exactly the same reasoning warrants bidding to as much as 17 per suez share.

Chart showing suez/veola regional incomes

But cost savings and competitors issues aside, there are considerable risks. liquid and waste for manufacturing clients, about 50 % of connected team visibility, stays tied to the wider economic cycle. the pandemic has recently dragged profits lower this season. veolia operates the risk of overpaying if faced with a double-dip recession, and a stain on mr frrots reputation.

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