Aveva/Schneider: bumpitrage yields small victory for minorities

Bumpitrage — the place activists press would-be acquirers for higher deal phrases — could be dangerous. But minority traders in UK software program group Aveva, have succeeded in wringing a greater buyout provide from Schneider Electric. The French multinational elevated its provide by 4 per cent on Friday, valuing Aveva at £9.8bn. Schneider’s provide is now closing. Amended phrases, not simply the upper value, are more likely to get holdouts over the road.

Even so traders, together with arbitrageurs at hedge fund Davidson Kempner, nonetheless have trigger to view Schneider’s bid as opportunistic. Even with a 47 per cent premium, the £32.3 per share provide is effectively under the £42 the place shares peaked final yr. Earnings multiples counsel a 30 per cent low cost to comparable software program offers and to Aveva’s previous valuation.

Missed earnings and slowing revenues have weighed on shares. So have decrease tech valuations. But the derating was overdone. Earnings estimates have solely fallen by a tenth for the reason that begin of the yr. The swap to a “software as a service” (SaaS) mannequin ought to result in steadier long term money flows, even when related prices squeeze short-term earnings.

Governance points additional muddy the waters. Aveva’s chief government is ex-Schneider. Similar overlaps apply to others on the chief staff and board.

Schneider, which holds 59 per cent of the shares, wants the help of 75 per cent of minority shareholders for the proposed scheme of association to undergo. Davidson Kemper with 3.8 per cent of the shares appeared to have rallied sufficient help to dam it, with simply 6.2 per cent extra wanted.

That end result is now unlikely. Those unhappy with the bump now have one other incentive to go alongside. Schneider additionally granted itself the choice to modify to a takeover provide from a scheme of association. True, it will want 90 per cent of the shares to realize the identical squeeze out. But with 75 per cent of the overall, Schneider might select to delist Aveva as a substitute. Long funds would then really feel pressured to promote lengthy earlier than arbitrageurs made for the exit.