Cleaning up or making in pretty bad shape? the board of french liquid and waste team veolia hopes maintain things tidy with its quest for neighborhood competing suez. chairman and leader antoine frrot this week stepped-up his promotion, refusing to eliminate a hostile method.

A bargain would develop a nationwide champ in a sector poised to make the most of growing environmental regulation. but competitors worries stood in the way of a previous offer. they stay a hurdle.

Couple of areas would be excluded through the sets combined geographic impact. regulators will concentrate on the strong existence in france. concerns killed merger speaks involving the two groups in 2012. as a fix, veolia has arranged infrastructure trader meridiam as a buyer for suezs french liquid assets.

Chart showing eu27 municipal waste treatment styles and target

Veolia offers 15.5 per share for 29.9 per cent of this suez shares held by former parent engie, valuing the whole business at 21bn, including debts. mr frrot hopes to capitalise on a strategic analysis at engie. if successful, a tender throughout suezs shares would follow.

The bid values suez at 26 times two-year forward profits, really over the 17 times average your stocks traded in past times five years. yet despite a 40 percent advanced to its three-month undisturbed cost, suez has actually begun readying its defences, saying a deal would destroy price. engie in addition has made murmurs it thinks the provide is too low.

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

Cost benefits could justify an increased cost. veolia believes a deal could create 500m of annual savings within four years. those are on top of current cost-cutting steps focusing on 1bn of cost savings by 2023. taxed and capitalised savings protect the advanced by more 1bn. exactly the same logic justifies putting in a bid to around 17 per suez share.

Chart showing suez/veola regional profits

But financial savings and competitors problems apart, there are significant dangers. water and waste for commercial consumers, about 50 % of blended group visibility, stays linked with the broader economic cycle. the pandemic has dragged earnings lower this current year. veolia operates the possibility of overpaying if confronted with a double-dip recession, and a stain on mr frrots reputation.

Lex suggests the fts due diligence newsletter, a curated briefing regarding the world of mergers and acquisitions. click here to register.