France's Schneider Electric is to buy British engineer Invensys for an agreed 3.4 billion pounds ($5.2 billion) to strengthen its high-margin industrial automation business and win more custom in the fast-growing energy sector.
Schneider said on Wednesday it would pay 502 pence a share in cash and stock, 14 percent above Invensys' closing price the day before talks between the two firms were disclosed.
That is just below an initial proposal of 505 pence a share, although the cash component is higher at 372 pence versus the original 319 pence.
Schneider, which has been hit by a faltering world economy and weak European markets in particular, is hoping that buying Invensys will boost its position in the fast-growing, global industrial automation business. Invensys produces software that helps to run power stations, oil refineries and chemical plants.
The British firm has long been touted as a takeover target in an industry dominated by larger rivals and some analysts had speculated Schneider's interest could prompt rival bids from firms like Emerson and General Electric
However, analysts had also said Schneider was offering a good price.
On Wednesday morning, Schneider's shares were up 3 percent at 59.75 euros, while Invensys' were up 1.9 percent at 500 pence.
Schneider said it expected the deal to boost cash earnings per share by a low to mid single-digit percentage in 2014 and by a high single digit-percentage in 2016.
It expects to achieve 160 million euros in operational synergies annually by 2016 from the deal. Total integration costs would reach around 150 million euros over 2014/15, with acquisition costs of about 60 million and tax savings at around 400 million euros over the first five years, it added.
Schneider said its first-half earnings before interest, tax and amortization (EBITA) fell 2 percent to 1.53 billion euros, reflecting the impact of the economic crisis in Italy and Spain, low business confidence in France and lower spending by utilities in Germany.
But it kept its full-year organic revenue and EBITA margin targets, as organic revenues outside Western Europe returned to growth in the second quarter.
Based in the outskirts of Paris, Schneider Electric makes equipment for electrical power distribution and for industrial control and automation, selling products to the construction, electric power, industrial, and infrastructure markets.