French industrial group Schneider Electric has agreed a takeover of Aveva, the UK engineering software developer, in a deal worth more than £3bn.
The two companies have discussed a possible combination twice since 2015 but were unable to agree terms.
Under the terms announced on Tuesday, Schneider Electric will contribute its own software division to Aveva in exchange for new shares in the UK company.
Schneider will own 60 per cent of the enlarged company’s stock, valued at approximately £1.7bn. Existing Aveva shareholders will own the remaining 40 per cent. Schneider Electric will pay also £550m in cash or around 858p a share to Aveva shareholders to compensate them for giving up control.
In addition, Aveva will distribute £100m or 156p per share to shareholders, lifting the total pay out to ordinary Aveva shareholders to 1,014p a share.
Aveva shares jumped 25 per cent on Tuesday morning to £23.98, while shares in Schneider rose 1 per cent. The combined company will retain Aveva’s UK listing.
Philip Aiken, Aveva chairman, said he was “delighted” with the deal which would be “transformational to Aveva, creating a global leader in industrial software, which will be able to better compete on a global scale”.
Aveva supplies software to the oil and gas, mining, and paper and pulp industries. But its business has come under pressure as customers rein in spending in response to low commodity prices. Schneider’s software division includes assets that previously formed part of Invensys, the UK engineering group that Schneider Electric bought in 2013 for £3.4bn. A combination will allow for significant cost-cutting.
The first attempt at a combination between the companies collapsed in December 2015, six months after an initial agreement because of “integration challenges . . . that could not be overcome without considerable additional risk and cost”.
At the time, Aveva’s then chief executive Richard Longdon said that:
“The sad thing is the industrial logic was always good and still is. But they say that time kills deals. Too much time had gone on.” Schneider then made a fresh approach for Aveva in June 2016, but those talks collapsed after two days.
Mr Longdon, who joined Aveva more than three decades ago and had led the company for 17 years, replaced by James Kidd, Aveva’s chief financial officer, at the start of 2017.
Schneider Electric’s stock price has risen 4 per cent since the start of the year and the company has a market value of €41.1bn. Earlier this year, Aveva reported that revenues in the full year to March rose 7 per cent to £215.8m. But when the effect of currency movements removed, revenues were 3.8 per cent lower. Lazard and Numis worked with Aveva, while Morgan Stanley advised Schneider Electric.