Nexans SA (NEX), a French maker of cables and wires, is in talks to buy producers of high-voltage power lines in China and the Middle East, and is considering building plants for such cables in the U.S. and Russia.
“Ideally, North America and China are the priorities,” Yvon Raak, who manages Nexans’ high-voltage and subsea cables operation, said in an interview in Paris June 14. “We won’t do everything on our own, we’ll be selective on these projects, and that will also depend on talks with partners.”
Nexans, based in Paris, is in “very active talks” to take a majority stake in a small Chinese maker of high-voltage cables, and an announcement may come this year, he said. The company may also decide whether to build high-voltage cable plants in the U.S. and Russia in coming months, he said.
Nexans, which is being leapfrogged by Prysmian SpA (PRY) as the world’s largest cable maker after the Italian company outbid it last year to buy Amsterdam-based Draka Holding NV (DRAK), is expanding in high-voltage cables to benefit from expansion and renovation of power grids across the globe, and in specialty cables used in aerospace and other industries.
In the U.S., where Nexans competes with General Cable Corp. (BGC), the high-voltage market is on the French company’s “radar screen,” he said. “The U.S. underground high-voltage market should grow in the next 10 years because the grid is old and needs to be renovated, and development of overhead networks is less accepted.”
A decision on the plant will be taken within six to 12 months, the Nexans executive said. “We’re itching to make that decision,” he said.
Energy infrastructure cables, which include land and submarine power transmission cables and low- and medium-voltage power distribution cables, accounted for about two-fifths of Nexans’s revenue in 2010. Such products are more profitable than cables used in construction and telecommunications.
In Russia, Nexans is considering investing as much as 50 million euros ($71 million) to build a high-voltage facility in Ouglich, where it already makes low- and medium-voltage cables, Raak said. Alternatively, it may continue to supply the Russia HV markets from existing European plants, which will probably see rising demand in coming years for medium-voltage cables required to connect offshore wind farms developed in countries such as German, Denmark, the U.K. and soon France, he said.
“In China, we’ve dropped the idea of a greenfield facility for land HV cables which would add to production capacities and would take three years to implement,” Raak said.
A purchase in China would mark Nexans’s first acquisition since it was outbid by Prysmian to buy Draka last year. The French company’s most recent acquisitions include Santiago, Chile-based Madeco for $822 million and Milan-based Intercond SpA for 90 million euros, both in 2008.
In the Middle East, building a high-voltage cable plant “isn’t an option because there are already many local players,” Raak said. “If we were to have the opportunity to buy something local, either already existing or in a start-up phase, we would look at it provided that sellers or partners don’t dream too much on future Ebitda multiples. We’re having some contacts and are looking at things.”
Turmoil in the Middle East has hurt Nexans’s land high- voltage business in recent months by delaying the beginning of contracts in the Gulf countries and interrupting work in Libya, trimming the company’s first-quarter revenue growth by 2 percentage points to 13 percent, Nexans said on April 27.
“The Middle East was very active from 2005, and until 2008 or 2009, a little bit less so now that there’s a lot of installed lines, but we still see it as a growth area in coming years,” baring a strong political shakeup, Raak said. “Libya will become a growth area again. There’s a lot of oil, a lot of people and a lot of reconstruction needs.”
In Libya alone, where Nexans has withdrawn its staff due to the civil war, the company had been banking on about 40 million euros of revenue this year, Nexans Chief Executive Officer Frederic Vincent said May 31.
Vincent also reiterated Nexans’s annual target for organic sales growth of more than 5 percent, and an operating margin of about 5.5 percent, “subject to satisfactory pass-through of price increases for plastics and components,” up from 4.8 percent in 2010.
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