The Invensys Board agrees to recommend Schneider’s offer. As part of the deal, Schneider will take on the £5bn Invensys Pension Scheme.
Argyll comment: the large pension obligation may potentially have been a factor in the failed approach by US-based Emerson Electric in 2012. However, the financial position of the Invensys Pension Scheme (‘IPS’) had been shored up earlier in 2013 following Invensys’ sale to Siemens of its Rail division in May. Of the £1.7bn proceeds, £625m was earmarked for the IPS in the form of £400m cash with the rest held in a contingent asset. Invensys had long been seen as a takeover target and by addressing the pension deficit, it was always likely to attract further interest.
Prior to the transaction, Schneider Electric had fairly strong cash generation and relatively low debt. Net debt will increase by around €3bn but looks like it will remain at manageable levels and overall the acquisition appears to be a good fit for Schneider. As for the covenant faced by the IPS, this will depend largely on the restructuring plans Schneider has for Invensys and how that will affect the scheme’s sponsors. Nevertheless, Schneider Electric was the stronger, much larger group so there could be potential upside for the covenant, particularly with the right scheme support structure in place.