Dutch electrical parts distributor Hagemeyer rejected a breakup offer from French rivals Rexel and Sonepar, although analysts said the French camp remained well placed in its bid attempt.
Rexel said on Thursday it would make a 3 billion-euro ($4.27 billion) cash offer for Hagemeyer and then sell on certain Hagemeyer assets to Sonepar. Sonepar had earlier withdrawn an offer it had made itself for the Dutch company.
Rexel said it would offer 4.60 euros per share for Hagemeyer. It said this was a 47 percent premium to the average Hagemeyer share price for the one-month period prior to Oct. 9, when Sonepar announced its own 4.25 euros a share offer for the Dutch company.
Hagemeyer rejected the offer, saying it undervalued the company.
"The management and supervisory boards of Hagemeyer reiterate their strong confidence in the company's strategy and its future and are convinced that the continuing improvement in Hagemeyer's performance and profitability can realize value substantially higher than the 4.60 euros per share offered by Rexel," it said in a statement.
In early afternoon trade, Hagemeyer shares were down 3.1 percent at 4.67 euros -- above Rexel's offer price.
Rexel shares had surged on news of the Hagemeyer deal and were up 11.9 percent at 14.97 euros. At that price, Rexel has a stock market value of around 3.8 billion euros.
Petercam analyst Fernand de Boer said he had expected Hagemeyer to reject the deal and hold out for a better offer.
However, other analysts said Rexel's offer was well-placed to succeed providing it won regulatory approval.
"The teaming up of Rexel and Sonepar effectively removes the possibility of a bidding war even though Hagemeyer may continue to state that a bid of 4.60 euros per share is insufficient," said SNS Securities analyst Richard Withagen, adding that Hagemeyer's bargaining power had been reduced since Rexel and Sonepar were the two most likely buyers.
Hagemeyer to Meet Rexel
Hagemeyer said it saw room to improve its operating results, margins and return on invested capital.
It also said it had "unutilized tax losses" of 1.025 billion euros available to offset future taxable income. Hagemeyer said this was expected to lead to a reduction in future tax payments of at least 200 million euros.
The Dutch bid target also said it planned to meet Rexel so that Rexel could "clarify its intentions."
GSD Gestion fund manager Christophe Gautier said Rexel's move on Hagemeyer made strategic sense for the French company.
"Rexel needed something to boost its growth and Hagemeyer is a highly regarded player in the sector. Rexel is buying out an important competitor at a decent price," said Gautier, who holds Rexel shares.
Rexel said if the acquisition was successful, it would sell Hagemeyer's American, Asian-Pacific and certain European activities to Sonepar.
Rexel would keep much of Hagemeyer's European assets, meaning that Europe would account for more than 50 percent of Rexel's global revenues. It said it had secured full debt financing for the Hagemeyer offer.
"Even if they're going to split up Hagemeyer, the most important bits are going to Rexel. Rexel has sort of won the battle," said Arnaud Scarpaci, fund manager at Agilis Gestion, who recently sold some Hagemeyer shares following the Sonepar bid offer.
Rexel said the Hagemeyer deal would reinforce its position as a global leader in its sector, with 2006 proforma sales of more than 14 billion euros.
Hagemeyer primarily serves the construction and installation sector and benefited throughout 2006 from soaring copper prices, which it passed on to buyers.
However, copper prices have not risen at the same pace in 2007 and this has exposed Hagemeyer to difficult construction market conditions both in Europe and the United States.
Investment banks Goldman Sachs and Rothschild advised Rexel on the deal.