(Bloomberg Opinion) -- Veolia Environnement SA has wisely bettered its first lowball offer for 29.9% of rival water-and-waste firm Suez SA with a seriously sweetened bid that Engie SA — the state-backed utility that owns the stake — will find very hard to refuse. The bigger question is whether it’s enough to get French politics out of the way.The new offer of 18 euros per share represents a 16% increase and values the Suez stake at 3.4 billion euros ($4 billion). Veolia boss Antoine Frerot’s aim isn’t just to stuff Engie shareholders’ mouths with gold, but to remove as much political risk as possible. The company has committed to maintain full employment of Suez workers in France if it manages to swallow the entire company. Plus it’s pledged any takeover would be on a friendly basis after six months of negotiations to reach an agreement. The new price is undeniably attractive. It represents a multiple of 90 times Suez’s projected adjusted earnings this year and 28 times next year’s, according to data compiled by Bloomberg. The earlier 15.50 euro offer proposed undemanding cost savings of only 500 million euros, a sum worth an estimated 1.5% of combined operating costs, according to Barclays. A bid in the high teens, as my colleague Chris Hughes has written, always looked more realistic.While the fairer price should please Engie’s board and shareholders of Suez, whose stock rose as much as 8% on the news, it’s the friendlier tone that will please President Emmanuel Macron and his finance minister, Bruno Le Maire. Tensions are running extremely high between Veolia and Suez’s board, which has resorted to increasingly desperate measures such as a “poison pill” move to block asset sales it says would be terrible for jobs and profits.No French government wants to be lumped with job cuts, angry trade unions and a corporate battle so bitter it could hurt business in the long run. Frerot looked caught between Suez’s demands for a full takeover and efforts by Le Maire to buy more time to find a solution. His new move represents a compromise: A higher price to seal this first transaction fast, followed by a slow cooling-off period to negotiate with Suez.It’s hard to see why Engie would say no to getting more cash for an asset it has no interest in keeping. The French state, which is Engie’s No. 1 shareholder, would also get more bang for the taxpayer’s buck. And so far Suez, for all its aggressive rhetoric and “crown jewels” tactics, hasn’t come up with an alternative bidder or convincing value proposition.Suez is still trying to convince Engie and the French government to rebuff Frerot’s approach. But its defense has been weak so far. Its fundamentally dim view of Veolia’s attempted stake purchase, along with the political risk and high antitrust hurdles to any full takeover deal, explains why Suez’s shares are still trading below the new 18-euro offer price. The pressure from exasperated Suez shareholders will likely increase, as activist funds are urge the company’s board to engage with Veolia.Given Frerot has shown he can pull off a tactical climb down and reduce the hostility somewhat, there’s an opportunity for his rival to do the same.This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Lionel Laurent is a Bloomberg Opinion columnist covering the European Union and France. He worked previously at Reuters and Forbes.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg Opinion) -- Shareholders of French utility Suez SA, whose specialty is drainage, waste management and water treatment, know when something doesn’t smell right.It’s been several weeks since rival Veolia Environnement SA launched a bid to buy a 30% chunk of Suez from state-backed utility Engie, opportunistically exploiting a depressed Covid-19 valuation. Suez’s justified outrage at this move, which would put Veolia boss Antoine Frerot in pole position to swallow the entire company, hasn’t been backed up by a convincing alternative, however. Worse, Suez’s increasingly desperate antics are spooking its own investors, who sent the stock down as much as 5.2% on Thursday.The trigger for the sell off, which left Suez’s shares trading further below Veolia’s 15.50 euro bid, was the announcement of a poison-pill tactic designed to deter Frerot for good. Veolia publicly earmarked the sale of Suez’s French water business to pacify antitrust authorities in the event of a full takeover. So Suez has moved to put that asset out of reach by enacting a defense known as “the crown jewels.” The plan is to create a Dutch foundation that would own a symbolic but powerful piece of the division, ensuring it isn’t split from the group.As a defense designed to make Suez unbuyable, it’s hardly watertight. Steelmaker Arcelor tried, and failed, something similar in 2006 to fend off Lakshmi Mittal — though it did attract a higher bid. Suez’s plan could be reversed if the board, which currently includes two Engie representatives, got a sufficiently attractive offer. Veolia is unlikely to see this on its own as a deal breaker. But as a message to the market, and to a French government caught in the middle of a bitter corporate bust-up, it’s an absolute disaster. Suez is placing one of its most sought-after assets out of reach of its own minority shareholders — who don’t even get a vote — all while claiming it’s doing so for the integrity of the business. This stance of total opposition also ignores the reality that Engie has signaled it could be a willing seller at a higher price.Suez investors were already exasperated with years of underperformance. This is hardly going to make them more supportive. The decline in the shares can be seen to reflect the reduced chance of a successful takeover, as well as a vote against a management team behaving in a way investors regard as contrary to their interests. All other things being equal, Suez’s clumsy defense move should not be a big setback for Frerot. But Suez has at the least made any deal more complex, and Veolia may now have to offer trustbusters alternative disposals, such as its own water unit, reckons Adrien Dumas, a fund manager at Mandarine Gestion.Frerot is no longer on the front foot. He has stuck to ungenerous bid terms for too long and allowed a bad mood to fester. The momentum of his campaign is stalling.Veolia is now conceding that it may raise its offer for the Engie stake. It would have been better to make a knockout bid for that from the start — or sweeten very quickly. It’s not too late for Frerot to do that, but he’s squandered the chance to get a deal done cleanly. This is one Suez crisis that could have been avoided.This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Lionel Laurent is a Bloomberg Opinion columnist covering the European Union and France. He worked previously at Reuters and Forbes.Chris Hughes is a Bloomberg Opinion columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.