UPDATE 3-Schneider weighs bid for Tyco Intl-report

* Schneider weighing takeover offer – Bloomberg

* Deal would force Schneider to issue equity – analyst

* Tyco up 3.7 percent, Schneider shares down 3.7 pct
(Adds analyst comment, details on CDS trading, byline, updates
shares)

By Nick Zieminski and James Regan

NEW YORK/PARIS, April 11 (Reuters) – France’s Schneider
Electric (SCHN.PA: Quote, Profile, Research), the world’s largest maker of voltage
equipment, is considering a takeover offer for industrial
conglomerate Tyco International Ltd (TYC.N: Quote, Profile, Research), but the idea is at
an early stage and no deal is imminent, Bloomberg reported.

Schneider is working with bankers to help it weigh up a
potential purchase of Tyco, Bloomberg said on its website,
citing people with knowledge of the matter that it did not
identify.

Neither company commented and analysts said any deal this
size would face significant obstacles, not least funding.
Credit Suisse analysts called the deal very unlikely because it
was outside Schneider’s core strength in factory automation.

Shares of Tyco, parent of the ADT Worldwide security
service, jumped 3.7 percent on Monday to $48.91, their highest
level since 2007. Schneider shares fell 3.7 percent in Paris to
117 euros ($169).

The cost of buying Schneider five-year credit default swap
(CDS) rose 20 basis points to 78, according to Markit, a market
data provider. It now costs 78,000 euros to insure 10 million
euros of Schneider’s debt against default. The five year CDS
peaked at over 100 bps at one stage before retreating.

Schneider, which competes with Germany’s Siemens (SIEGn.DE: Quote, Profile, Research)
and ABB (ABBN.VX: Quote, Profile, Research) of Switzerland, has made a series of small-
to medium-sized acquisitions over the past year, many of them
focused on emerging markets like India and Russia.

It bought Pelco, a maker of video security systems, in
2007, adding the business to its building automation segment.

Tyco’s market capitalization is roughly $23 billion,
including Monday’s gains. Schneider has a market value of about
$46 billion. One credit analyst said Schneider would need to
issue equity since it could not borrow enough to pay for such a
deal.

“We doubt that Tyco, wishing to remain independent, would
go quietly, and a hostile bid would likely require a high
premium and considerable cash,” Gimme Credit director of
research, Carol Levenson, said in a note to clients.

Besides security services, Tyco makes fire safety systems
and industrial products such as valves and controls used in
water and chemical systems.

VALUING TYCO

Analyst Brian Langenberg of Langenberg & Co, called a
possible merger with Schneider “a really good deal,” estimating
Tyco would sell for at least 10 times operating earnings, or
roughly $65 a share.

If Schneider were to bid, it would need to offer a high
enough price to discourage rivals such as Siemens AG
(SIEGn.DE: Quote, Profile, Research), U.S. companies like Honeywell (HON.N: Quote, Profile, Research) and United
Technologies Corp (UTX.N: Quote, Profile, Research), or a telecom or cable bidder.

“I don’t think you sell for less than 65 bucks,” Langenberg
said. “They need to have their wallet out.”

Analysts including Langenberg have said the recent strength
of the euro could make U.S.-listed targets more attractive for
potential bidders based in Europe. One euro buys $1.44,
compared with about $1.33 at the start of the year and less
than $1.20 a year ago.

Langenberg credits Tyco Chief Executive Ed Breen with
saving the company’s reputation, then refocusing it on its core
businesses after the fraud conviction of former CEO Dennis
Kozlowski, who is serving a prison sentence.

Last year, Tyco added to its security technology portfolio
with the $1.9 billion purchase of Brink’s Home Security, a
maker of residential and commercial security systems.

Tyco has been reshaping its business since the 2007
spin-off of its electronics and healthcare divisions into
standalone companies, now called TE Connectivity Ltd (TEL.N: Quote, Profile, Research).
and Covidien PLC. (COV.N: Quote, Profile, Research)

It has announced several small deals in areas like valves,
while also selling off assets, including a majority stake in
its electrical and metal products unit and its European
waterworks business.

More diversified companies are reviewing portfolios to
boost growth in a slow economic rebound. Sales of non-core
assets could open the door for these newly created companies to
be acquired, dealmakers said last week at the Reuters Global
Mergers and Acquisitions Summit. [ID:nN05159239]
($1 = 0.6919 euro)
(Additional reporting by Adam Parry; Editing by Derek Caney,
Matthew Lewis and Tim Dobbyn)

UPDATE 3-Schneider weighs bid for Tyco Intl-report