When partners fall out

The conflict between two blocks of shareholders in water company SAUR – France’s third-largest utility – has all the ingredients of a Shakespearian drama, including accusations of treason and back-stabbing as the fallout from a doomed takeover bid continues to exacerbate.

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, which is intent on taking over SAUR in the face of fierce opposition from the other shareholders.


The bickering has got so bad that the shareholders have brought on board an outside mediator to try and devise a solution to accommodate all parties. But SAUR’s owners were not always so aggressive to each other. Once upon a time, in now-distant 2007, the stakeholders – minus Cube, which only bought into the company in late 2008 – were perfectly aligned in their patriotic desire to keep SAUR a French company.

As Joel Seche, the head of Seche Environnement and president of SAUR, tirelessly repeats in the French media, Seche climbed on board the deal, at the behest of CDC, to beef up a French consortium intended to keep SAUR in French hands. At the time, Australia’s Macquarie Group was allegedly in line to buy the asset from private equity firm PAI Partners.

In exchange for his participation, Seche was given a call option, expiring May 27 2012, to take over SAUR by buying an extra 18 percent in the company from majority shareholder FSI/CDC. With SAUR firmly under its belt, Joel Seche would see his Seche Environnement grow to rival French behemoths Veolia Environnement and Suez Environnement.

Then in 2008, the Crisis burst onto the scene, changing the rules of the infrastructure game; and, all of a sudden, you had an industrial shareholder with a radically different agenda from his financial partners.

At the crux of the matter are the potential consequences triggered if Seche exercises his 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 on 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.

For the likes of AXA PE and Cube, a potentially expensive refinancing would probably wipe out the value of their investments in SAUR. Especially since SAUR, according to French newspaper Les Echos, is, at €1.1 billion, currently worth roughly half its 2007 enterprise value of €2.25 billion.

Seche, as an industrialist, obviously has a different take on the matter, although he is murky on how SAUR would be recapitalised. In a recent interview with French newspaper Le Figaro, Seche answered, when asked about SAUR’s debt:

“SAUR is a very fine company. But like all LBO-type deals done in 2007, just before the financial crisis, it bears substantial acquisition debt. It is essential to provide an industrial project for SAUR. I have been working on it for many months, but I’ve come up against the financial vision of the other shareholders.”

Fortunately for the “other shareholders”, Seche will probably not be able to obtain the €180 million required to buy the extra 18 percent in SAUR at 2007 prices. This has prompted them to openly suggest replacing him at the head of SAUR once the takeover deadline expires.

Whatever happens to SAUR, one thing seems clear: the shareholders’ interests were only ever tenuously aligned. For Seche, his initial investment in SAUR was a pit-stop toward an eventual takeover that would position Seche Environnement on a par with bigger rivals.

For the other shareholders, their investment in SAUR was probably more traditional and more bound up with the fortunes of SAUR itself. As the FSI said in a recent statement: “The FSI’s primary concern is to promote the long-term development of SAUR for its shareholders, customers and employees.”
With a May 27 deadline for Seche to exercise its call option, the end-game is near.