AVEVA and Schneider break up

Dec 15, 2015 | Hot Topics

Word just came that AVEVA and Schneider Electric have decided to break off talks to merge/acquire one another’s software businesses. No real reason was given, just “unable to reach agreement and discussions have been terminated by mutual consent”. Since the deal framework outlined last summer was non-binding, there are no breakup fees payable by either party. Of course, the companies spent a great deal on the due diligence so it’s not like this exercise was free …

AVEVA’s statement says that its consideration of the deal led it to see “significant integration challenges … that could not be overcome without considerable additional risk and cost. This was exacerbated by the highly complex structure of the proposed transaction. As a result, the Board has determined that the anticipated uplift in shareholder value was unlikely to have been realised to the extent previously considered.” Schneider Electric said even less, just that “[t]he two parties have decided to stop their discussions by mutual consent as no agreement could be reached on the terms of transaction.”

It’s too bad — the deal made a great deal of sense for industrial customers who could have benefitted from a more tightly integrated design and operational environment. Too, AVEVA would have gotten a jumpstart at growing its business in non-oil & gas verticals while Schneider Electric Software brands would have seen the level of attention that they simply can’t get as part of a hardware company. I think both sides were truly excited about the opportunities presented by a combined entity but it seems things dragged on too long, and enthusiasm waned.

One last thing: AVEVA’s announcement said that business is chugging along as expected during November’s earnings release and that outlook remains unchanged. Nonetheless, the share price is down 30% today. (Schneider Electric’s share price is unchanged.)

The logic that made this deal a good idea still stands and it’s likely that another industrial suitor will emerge. The financial buyers that were interested in AVEVA earlier this year might also step back in, especially at today’s share price. But let’s not forget that AVEVA is a perfectly fine company on its own — it doesn’t actually need to be acquired, there’s no struggle or shortage of cash. Let’s see what happens next.