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Open warfare in AXA, Cube portfolio company

AXA, Cube and the FSI – all shareholders in French water company SAUR – are fiercely opposing fellow shareholder Seche’s plan to take over the company. An arbitrator has been brought on board to try and break the shareholder deadlock as the clock ticks away on a May 27 takeover deadline.

The fallout from what gradually looks like a failed takeover bid of French water company SAUR by its second-largest shareholder is becoming increasingly heated, with an arbitrator having been brought on board to try and break the deadlock between warring stakeholders.

On one side, you have the majority of SAUR’s shareholders – AXA Private Equity (AXA PE), Cube Infrastructure and the Fonds Strategique d’Investissement (FSI), a fund affiliated to state-backed bank Caisse des Dépots et Consignations (CDC). On the other, you have Seche Environnement (Seche), SAUR’s second-largest shareholder, intent on taking over SAUR in the face of fierce opposition from the company’s other shareholders.

The takeover was part of the original acquisition plan, when in 2007 AXA PE, FSI and Seche bought SAUR from private equity firm PAI Partners. At the time, Seche secured a call option to buy an extra 18 percent stake in SAUR from the FSI, the water company’s biggest shareholder with 38 percent of SAUR. Cube only joined the company in late 2008, via stake sales from AXA PE and the FSI.

But the global economic and financial crisis has derailed the shareholders’ original plan. 

The main problem pertains to Seche’s exercise of the call option. Any bid for majority control of SAUR would trigger a clause in its debt covenants that could pave the way for banks to demand an immediate refinancing of the circa €1.6 billion in debt that SAUR holds in its books. Its debt, most of it related to the 2007 acquisition, is priced at comparatively cheap 2007 levels, meaning any refinancing could raise the cost of servicing the debt significantly.

Unsurprisingly, SAUR’s other shareholders are not keen on a potentially expensive refinancing at this point in time – especially since the company, according to French newspaper Les Echos, is, at €1.1 billion, currently worth roughly half of its 2007 enterprise value of €2.25 billion. The latter is also a problem for Seche, as the call option demands the firm acquire control of SAUR at 2007 prices. According to Seche, the company doesn’t have that kind of money now.

That has led the FSI, two days ago, to put the final nail in the coffin of Seche’s original plan:

“Seche now wishes to have this majority [control] without paying the price stipulated in the contract signed. The FSI finds today a complete deadlock between company management and its president. Everyone recognises that this situation seriously undermines the development of the company,” the FSI said in a statement. 

SAUR is headed by Joel Seche, the head of Seche, an appointment made in anticipation of the takeover. Now that it looks unlikely to happen, SAUR’s other shareholders are trying to depose Joel Seche from SAUR’s presidency.

With a May 27 deadline for Seche to exercise its call option, the end-game is near.