* Combined firm would have less than 5% share of global market
* Rise of Chinese players is a major reason to join forces
* Suez reiterates confidence in strategic project as independent (Recasts with Suez statement, closing shares)
PARIS, Aug 31 (Reuters) - French waste and water management company Suez said on Monday an unsolicited takeover approach from larger peer Veolia carried “great uncertainties” and it reiterated its confidence in its strategic project as an independent company.
Shares in Suez rose nearly a fifth on Monday after a takeover approach from Veolia, which wants to bulk up as competition from rivals, including in China, grows.
Late on Sunday, Veolia said it was offering to buy a 29.9% stake in Suez from French gas and power utility Engie for 2.9 billion euros ($3.45 billion), saying it aimed to create a “world champion of ecological transformation”. In a response issued after the close of the market on Monday Suez said: “Veolia’s offer raises concerns about the future of water treatment and distribution activities in France, as well as the level of employment given the amount of synergies announced by Veolia.”
“The complexity of the chosen process would lead to two years of operational disruption whilst, in a post-COVID context, the teams are focused on implementing their strategic plan,” the statement said.
Suez shares rose by 18.5% on Monday while Engie shares rose 4.67% and Veolia’s shares advanced 5.73%.
If the offer is accepted by Engie, Veolia will formally bid for the rest of Suez, in a deal which would give Suez an enterprise value, which includes debt, of around 20 billion euros ($23.8 billion).
Veolia is already a world leader in the waste and water management segment. But the industry is particularly fragmented, Veolia’s Chief Executive Antoine Frerot said, adding his firm’s market share currently stood at 2% to 3% and that the combined company will still have less than 5% of a market that is worth 1.4 trillion euros.
Competition is growing from Chinese companies branching out overseas and infrastructure funds buying up assets, he said.
“Consolidation is going to continue,” Frerot said on a call with journalists. “We will one day very certainly see a global Chinese player emerge.”
The coronavirus pandemic, which has sharpened governments’ focus on other crises, such as the fight against climate change, and a decision by Engie to simplify its structure and sell some assets had given the deal impetus, Frerot said.
Though Suez and Veolia’s business is largely complimentary outside France, the overlap in their home market has been an issue before. Informal tie-up talks in 2012 fell apart because of anti-trust concerns.
Veolia - which said it aimed to finance the stake acquisition in cash and would consider a capital increase and new debt for the rest of the takeover - said on Sunday it had already identified competition issues, and had found a buyer for Suez’s French water activities, French infrastructure fund Meridiam, for an undisclosed amount.
“The acquisition of Suez would make Veolia more international, with significant positions in Spain and Northern Europe in particular,” analysts at Bryan Garnier said in a note, adding that the rationale for the deal made sense but that anti-trust and financing issues still had to be worked through.
Engie, in which the French government has a 23.6% stake, is trying to simplify its structure by selling assets. It said it would study the proposal in the coming weeks.
The French state will monitor the impact on jobs and on essential activities in France of any engagements Veolia makes as part of its offer to buy the Suez stake, Finance Minister Bruno Le Maire said on Monday.
State-owned bank CDC also has a 5.97% stake in Veolia.
($1 = 0.8401 euros)
Reporting by Sudip Kar-Gupta, Matthieu Protard, Geert De Clercq and Sarah White; editing by Barbara Lewis, Louise Heavens and Lisa Shumaker
Our Standards: The Thomson Reuters Trust Principles.