Prysmian would need investor cash to up Draka bid

* Higher bid could still generate large Prysmian savings

* Synergies seen 50 pct higher than group estimate -analyst
*EV/EBITDA multiples could justify higher price -analysts

By Nigel Tutt

MILAN, Nov 24 (BestGrowthStock) – Italy’s Prysmian (PRY.MI: ) could
muster a higher offer to trump rival bidder Xinmao (000836.SZ: )
in the race to grab Dutch cable maker Draka (DRAK.AS: ) and still
make large savings.

But analysts said on Wednesday it would need to tap
investors if it is to raise its cash and share offer.

China’s Xinmao crashed Prysmian’s friendly bid to become the
world’s leading cable maker by announcing a higher all-cash
offer for the No.3 European player Draka, just hours after the
Prysmian bid was made public on Monday.

Draka is now in talks with Xinmao on its 20.5 euro-a-share
offer valuing Draka at 1 billion euros. This is 20 percent above
Prysmian’s bid, currently worth 16.65 euros a share and valuing
Draka around 812 million euros ($1.1 billion).[ID:nLDE6AM176]

“Despite its denial, we think Prysmian could raise its offer
to match Xinmao’s. The multiples would remain reasonable and we
see upside to Prysmian’s announced synergies,” a Paris-based
analyst, who did want to be identified, told Reuters.

The analyst said he believes Prysmian’s internal estimate
for synergies is for 150 million euros, 50 percent higher than
the 100 million euros a year it has disclosed publicly.

Xinmao’s bid is seen valuing Draka at a fair price, based on
enterprise value/earnings before interest, tax, depreciation and
amortisation multiples for 2011, Dutch bank ABN Amro said.

“Both Prysmian and Nexans could offer 20.50 euros per share
for Draka in a deal that is EPS enhancing from 2011…and does
not stretch net debt/EBITDA beyond 3 times,” ABN said in a note.

France’s Nexans (NEXS.PA: ) had its 15 euros/share cash offer
rejected by Draka. The world’s No.1 cable-maker is due to make
an announcement on Draka later on Wednesday.

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China’s Xinmao tries to dispel Draka bid doubts [nLDE6AM176]

Graphic: http://r.reuters.com/zyh96q

Graphic: http://r.reuters.com/vyf96q

Draka’s mystery bidder shows China “magic” [ID:nTOE6AM04L]

Deal calculator http://link.reuters.com/teb66q

Dutch family holds key to China offer [ID:nLDE6AL1J6]

For a background story [ID:nLDE69J27O]

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RIGHTS ISSUE NEEDED

Based on a 20.50 euro bid, Draka’s 2011 enterprise value is
6.6 times its core earnings. This compares with multiples of 6.0
times for Prysmian and 4.4 times for Nexans, ABN said.

But to finance a higher bid, Prysmian would need to do a
rights issue as it does not have any more internal resources,
analysts say. The company, whose ownership is fragmented, has no
guarantee such a capital increase would win investor backing.

This week, Prysmian Chief Financial Officer Pier Francesco
Facchini said “headroom is still very significant” in debt
covenants after the group’s current Draka bid, adding banks do
not count pension liabilities in this calculation.

“In theory Prysmian could draw its credit lines … but in
this case the debt level would be too high to be sustainable in
terms of net debt/EBITDA,” a Milan analyst said, adding pension
liabilities should be included in a debt calculation.

“My opinion is that Prysmian at the end of the day will be
compelled to launch a capital increase,” the analyst said.

Speaking before Xinmao’s bid, Facchini said he did not
foresee a post-Draka deal rights issue to cut debt.

French Broker Cheuvreux said Prysmian could not match
Xinmao’s bid without a rights issue, adding Prysmian would also
have to review the Draka deal to extract more synergies.
(Editing by Alexander Smith)

Prysmian would need investor cash to up Draka bid