Nexans risks Draka bid going way of Prysmia

Corrects third paragraph to offer for Draka, not Nexans

By Greg Roumeliotis

AMSTERDAM (BestGrowthStock) – Nexans (NEXS.PA: ), the world’s biggest cable maker, is in danger of seeing its offer for Dutch rival Draka (DRAK.AS: ) slip through its fingers, as it did for Prysmian (PRY.MI: ), if it does not improve the terms of the deal.

In the summer of 2009, Italy’s Prysmian, the No.2 cable maker, made a failed bid for Draka as the company’s share price galloped beyond its reach — from 8 euros to more than 14 euros — while negotiations dragged on for more than two months.

Last week, Nexans said it would offer 15 euros per share for Draka, which would value the company at 731 million euros ($1.03 billion).

However, Draka shares had already soared by 50 percent since early September, when investors began speculating there was interest from Nexans, and the price has been hovering above 15 euros since a Dutch newspaper reported on October 14 that Nexans was speaking to a major Draka shareholder.

“I believe the market has to a large extent priced in a likely rejection of Nexans’s offer by Draka’s management, given that it has been eight days since the official announcement, and a positive share reaction for Draka of 5 to 6 percent is likely (were the offer to be officially rejected),” SNS Securities analyst Martijn den Drijver said.

Nexans said it had started talks with Draka on a deal and a Draka spokesman declined to comment on when the company would announce its reaction.

Analysts and investors said the proposed offer was too low and needed to be raised if the French company wanted to avoid the same fate as Prysmian.

“This is just the starting point and I think Nexans’s offer would have to be seriously higher before other Draka shareholders tendered their shares,” said Jack Jonk, head of equities at Delta Lloyd Asset Management, whose stake in Draka is a little over 2 percent.

ABN AMRO analyst Maarten Bakker agreed.

“I don’t believe Nexans can succeed at its current offer level of 15 euros per share and (it) is likely to raise its offer,” said Bakker, adding that even without synergies, Draka was worth at least 20 euros per share.

HOW HIGH IS TOO HIGH?

Nexans is considering a rights issue to fund its takeover of Draka, but with net debt of only 277 million euros, a cash call may not be required. Any downgrading of its BB+ credit rating would likely be limited to one notch, Standard & Poor’s said.

ABN AMRO’s Bakker estimates that Nexans could pay up to 17.5 euros per share for Draka if its offer is solely financed by debt and more than 20 euros per share if it uses an equity issue.

But SNS’s Den Drijver cautioned that an offer beyond 17 euros per share would be a very challenging pitch for Nexans to make to its management board, as any synergies with Draka are unlikely to be realized quickly.

Nexans, which is being advised by BNP Paribas (BNPP.PA: ) and Credit Agricole (CAGR.PA: ), has wooed Draka shareholder Flint Beheer, the investment vehicle of the wealthy Fentener Van Vlissingen family. Flint has conditionally agreed to tender its 48.5 percent stake in a Nexans bid for Draka.

Flint, which is advised by Lazard, bought Draka from Philips (PHG.AS: ) in 1986 and listed it in 1991. It also came close to selling its stake in the summer of 2009 when Prysmian was in talks with Draka about an all-share offer.

Prysmian said last week it was not in contact with Draka anymore, denting market speculation it could counter Nexans’s bid, and market participants said they did not expect a bid from anyone else.

ABN AMRO’s Bakker said Draka shareholders should get a premium of 6 euros per share in a takeover for synergies that include merging and streamlining manufacturing and sale operations, and bolstering raw materials purchasing power.

The current offer, he said, is worth only 5.2 times Draka’s enterprise value to projected 2011 core profit.

In the power cable segment, Nexans would help Draka consolidate its presence in the fragmented low-voltage market and combine it with its high-margin high-voltage offering, tapping into demand for replacing aging power infrastructure.

Draka is also a market leader in elevator cables. It has designed and provided cables for the 58 lifts of the world’s tallest skyscraper, Dubai’s Burj Khalifa, which towers some 828 meters above ground.

($1=.7124 Euro)

(Editing by Sara Webb and Karen Foster)

Nexans risks Draka bid going way of Prysmia