French electric equipment maker Schneider Electric SA said Monday it had agreed to buy American Power Conversion Corp., a U.S. manufacturer of backup power equipment, for $6.1 billion in cash.
Schneider said the $31 per share offer, which represents a 30 percent premium over APC’s Friday closing price, has been approved by the APC board. The deal is expected to have a positive impact on Schneider’s earnings from 2007, the company’s statement said.
Schneider plans to combine APC with its own MGE UPS Systems subsidiary. “The acquisition of APC will lead to a strong value creation, superior to $3 billion,” the company said.
The deal will generate annual cost synergies of $220 million, some 70 percent of which will be achieved within three years, Schneider said.
To finance the deal, Schneider said it has obtained a 4.5 billion euro ($5.7 billion) credit line from BNP Paribas and plans to raise 1.2 billion euros ($1.5 billion) in a subsequent capital increase.
“The deal makes sense strategy-wise, although it is expensive,” Fideuram Wargny analyst Jean-Michel Salvador said. “APC sales growth is attractive and there’s profit recovery potential.”
Schneider shares fell 4.9 percent to 84.00 euros ($106.54) when trading resumed in Paris after a brief suspension. The generous premium and planned capital increase could continue to weigh on the stock in the short term, Salvador said.
APC Chairman Rodger Dowdell and APC Chief Technical Officer Neil Rasmussen, who together own almost 10 percent of APC, have agreed to tender their shares to Schneider, the company said.
With 7,600 employees, APC generated $1.98 billion in sales in 2005. Small power systems, such as uninterruptible power supplies and surge arrests, account for about three-quarters of its business.
Schneider said APC’s profitability had “dramatically deteriorated” on a series of bad investments in larger power systems. The Rhode Island-based company’s operating margin — earnings before interest and tax as a share of revenue — fell to 9.4 percent in last year from 15.6 percent in 2003.
Schneider “is confident” it will help APC to recover rapidly.
Schneider, already outsourcing some of its own production to lower-wage countries, said it was “confident” it could turn APC around, highlighting the U.S. company’s production capacity in Asia, where it currently generates 18 percent of its sales.