Aveva Plunges After Schneider Electric Takeover Plan Ends

  • Companies cite risk for escalating costs from integration
  • ``Our M&A search will go on,'' Aveva CEO Longdon says

Aveva Group Plc shares plummeted after the company ended talks to sell a majority stake to Schneider Electric SE on risk that the cost of combining their industrial-software operations would be higher than anticipated.

The companies terminated the talks by mutual consent, Cambridge, U.K.-based Aveva said in a statement Tuesday. The companies identified “significant integration challenges” that would have resulted in “considerable additional risk and cost,” Aveva said.

Aveva shares fell as much as 37 percent, the biggest intraday decline since 1998, and were down 35 percent at 1,412 pence as of 9:48 a.m. in London. Schneider rose 0.7 percent to 52.77 euros in Paris.

Schneider had agreed in July to take control of Aveva in a deal that would have seen Aveva receiving 550 million pounds ($834 million) and Schneider owning 53.5 percent of the resulting entity. The companies intended to combine their software units, creating a business that helps design and operate engineering projects from nuclear power plants to diesel engines. There is no breakup fee since the deal was non-binding.

“This was a nice deal when it originated and the industrial logic was still there to do it but if the finances don’t work out and the risks are too great for our investors” then it “isn’t the right deal to do,” Aveva Chief Executive Officer Richard Longdon said in a phone interview. “I’m confident we’ve done the right thing.”

Since that accord, the oil price has fallen by about a third, potentially reducing demand for the companies’ products. Aveva’s software is used in more than 3,000 major global engineering projects, ranging from data management at the Paks Nuclear Plant in Hungary to 3D modeling of new diesel machines for German truckmaker MAN SE.

During due diligence, Aveva realized the Schneider operations it was planning to combine with were “tightly embedded” inside the company, making the merger more expensive than thought, Longdon said. Aveva will continue to look for partners, he said.

“Our M&A search will go on,” Longdon said. “We are always interested in talking to other partners about opportunities. Obviously some of them have been a bit of back burner with what we were doing with Schneider but we can quickly resurrect some of those opportunities.”

Engineering companies are seeking to expand their software offerings, which are generally more profitable than hardware sales and serve to tie customers in to multiyear service contracts.

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