The €11.9 billion joint offer from Ardian and Global Infrastructure Partners for Suez’s water and waste assets in France, alongside other international water assets, is the “only solution” to bridging the ongoing feud between French water giant Suez and compatriot Veolia, Ardian’s head of infrastructure Mathias Burghardt told Infrastructure Investor.
The pair are hoping their offer – formally submitted last week and endorsed by Suez – will pave the way for an amicable negotiation between Veolia and Suez for the latter’s remaining assets. The proposal, however, was quickly rejected by Veolia, which said in a statement it amounted to “the dismantling of Suez”. It asserted that the Suez endorsement was “surprising and shocking”, adding that the firm’s directors were trying to “promote their own personal and property interests”.
Veolia, which currently owns 29.9 percent of Suez, remains keen on acquiring the whole of the company for €18 per share, although it intends to divest its French water assets to Meridiam to avoid breaching European Union anti-trust laws.
Burghardt, though, cast doubt on the viability of this move.
“The strategy of Veolia has been very smart, trying to take over, in very special circumstances, their rival,” he said. “They underestimated the anti-trust issues, and that the solution proposed of only [divesting the] French water [assets] supported by Meridiam would be sufficient to convince the EU there would be enough competition.”
For his part, the Ardian infrastructure chief also sees the acquisition of Suez’s international water assets as critical to the success of the consortium with GIP.
“France is a very mature market, a declining market even, so a standalone market limited to France will not have a very bright future,” he explained. “That is why Veolia and Saur [owned by EQT] both want to grow. If you don’t have other markets to deploy your expertise, the future is in jeopardy.”
Following the Veolia takeover bid – which Suez rejected, saying it undervalued the company – it ringfenced its French water business as a “safeguarding mechanism” within Dutch takeover laws, which prevents the assets from being carved out until September 2024. However, this structure will be dissolved if Suez and Veolia reach an agreement by 20 April, or if Veolia increases its offer to €22.50 by 5 May.
In its statement following the Ardian and GIP bid, Veolia said the ringfencing mechanism was “seriously undermining the corporate interests and value of Suez”. Additionally, Veolia described Ardian and GIP as “two short-termist funds”, while it has previously stated that the “funds managed by [Ardian] are overwhelmingly from foreign investors”.
‘Trendy’ continuation funds
These criticisms were rejected by Burghardt, who revealed that Ardian has no plans to sell the Suez assets after Ardian Infrastructure Fund V, which would acquire them, expires.
“Behind any industrial company there are financial investors. Veolia has their own, many of whom are international. This is not the issue,” maintained Burghardt. “We have no plan to sell. Continuation funds are very trendy in the infrastructure space, especially for companies where we invest and we believe there is a merit to hold them for the benefit of our investors. I don’t think our plan is akin to buyout private equity investors looking to make a capital gain. Rather, it is to grow the company over time, create value and generate steady returns.”
He added that Ardian and GIP bring a like-minded industrial approach, with the duo having previously been shareholders together in oil storage group CLH. They plan for employees to hold a 10 percent stake in the new Suez, while they are also open to welcoming other institutional investors at the same time as maintaining majority French ownership.
Going forward, Burghardt’s hope is that a split of Suez’s assets into vehicles owned by Ardian and GIP as well as Veolia can coexist peacefully. “Veolia wants to be the largest company all over the world for environmental services, while Suez management want to provide state-of-the-art technological solutions for water treatments where they can really create value,” he said. “The two can survive.”