Schneider denial fails to kill Tyco buyout talk

Reuters News
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Posted: Apr 13, 2011 8:41 AM
Schneider denial fails to kill Tyco buyout talk

By Helen Massy-Beresford and Blaise Robinson

PARIS (Reuters) - Schneider Electric tried in vain on Wednesday to quash rumors that it planned to buy Tyco International with a statement that it was "not currently" in talks with the U.S. conglomerate.

"In response to market rumors, Schneider Electric announced today that it is not currently in discussion with Tyco International regarding a potential strategic transaction between the two companies," Schneider said in a statement.

A person with knowledge of the matter said on Tuesday that the French engineering group had held early talks with Tyco, and Morgan Stanley analysts said any deal was likely to be at a premium of as much as 35 percent, implying a price of about $31 billion.

Schneider shares initially rose more than 2 percent after the denial but were down 0.9 percent at 111.90 euros by 0916 GMT. France's CAC-40 index was up 0.4 percent.

"There was initially euphoria that Tyco wasn't going to happen, but it sounds like they got fairly serious about looking at Tyco, given the rumors," Jefferies analyst Alex Barnett said. "Even if it's not Tyco, it looks like management is in the mood for being aggressive. Something's coming."

Schneider stock had dropped as much as 8.1 percent earlier this week on concern over the financing of a potential bid for Tyco.

Analysts expressed concern about shareholder dilution from a possible Schneider capital increase to fund a deal for Tyco, which has a market capitalization of roughly $23 billion.

Morgan Stanley analyst Ben Uglow said Schneider, which has a market value of about $46 billion, would need to issue 9.4 billion to 11.9 billion euros in equity to fund a Tyco takeover.

Shares in Tyco, which has been restructuring under Chief Executive Ed Breen to refocus on its core businesses of security services, fire safety systems and industrial products, gained 1.7 percent in Frankfurt trading, despite Schneider's denial.

POTENTIAL BIDDERS

Schneider, which competes with Germany's Siemens and ABB of Switzerland, said in the statement it would make no further comment on the matter. Both Siemens and ABB have been mentioned by analysts as potential bidders for Tyco, which is parent of the ADT Worldwide security service.

ABB declined to comment. Siemens has previously said it would not consider takeovers larger than the VDO auto unit it sold for 11 billion euros ($15.9 billion) in 2007.

Schneider has made a series of small to medium-sized acquisitions over the past year, many of them focused on emerging markets such as India and Russia.

It bought Pelco, a maker of video security systems, in 2007, adding the business to its building automation segment.

"The denial will lift some pressure off Schneider, but it's likely that in the longer-term, speculation of a tie-up will keep weighing on the share," said one Paris-based trader.

"While Schneider denied holding talks with Tyco, it did not deny it will make an offer, and rumors should not disappear."

($1=.6912 Euro)

(Reporting by Helen Massy-Beresford, Blaise Robinson, Christian Plumb and Lionel Laurent in Paris and Emma Thomasson in Zurich; Editing by Will Waterman)