Suez Environnement Hunts for Acquisitions as Waste Market Turns

Suez Environnement is on the hunt for acquisitions in Europe, having ruled out a tie-up with rival Veolia Environnement SA to conquer waste and water markets outside France.

“I have a wish list,” Chief Financial Officer Jean-Marc Boursier said in an interview in Paris. “If we want to grow more than modestly, we sometimes have to acquire market share.”

Lower price tags on potential targets this year combined with cheap debt have made acquisitions attractive, he said. Waste-recovery and industrial water specialists are possible purchases, including those with technology to treat water from industries such as oil, natural gas and mining.

“We have financial flexibility,” said Boursier, 46, adding that the utility could spend hundreds of millions of euros on purchases.

The ratio of debt to earnings before interest tax, depreciation and amortization is about 2.7 and the company’s target is to remain at or below 3, he said. That gives some room to borrow. Adding 0.1 to the ratio is equivalent to about 250 million euros ($344 million), Boursier said.

Suez Environnement and Veolia, both rooted in nineteenth century France, held merger talks in 2012 when Veolia Chief Executive Officer Antoine Frerot had embarked on a turnaround plan to cut billions of euros of debt and sell assets to improve profitability. The utilities’ European waste-treatment businesses were hit hard by the region’s industrial slowdown and Veolia was forced to write down billions on businesses acquired during a buying spree under former CEO Henri Proglio.

Merger Talks

In October of that year, the companies denied merger talks were ongoing. Frerot has since said that while closer ties would have made sense outside France, discussions fell apart due to their dominant market shares at home.

“The companies have decided to follow their own way,” Boursier said in the interview. “We held very preliminary talks. We ended the discussion almost 18 months ago and we have no intention whatsoever of reopening any of those discussions.”

Suez Environnement has since weathered the European economic slump and the renegotiation of French municipal contracts in large cities such as Marseilles and Lyon to catch up with Veolia in terms of market capitalization.

Shares surged 7 percent last week after the Suez posted a 40 percent jump in net income and indicated the worst may be over for the European waste business. Veolia, meanwhile, is expected to post a 2013 net loss of 60 million euros Feb. 27, according to a survey of nine analysts by Bloomberg.

Defined Leader

“The market has clearly defined who is the leader,” Boursier said, citing the two utilities’ share performances. His goals, he said, include being the most profitable of the two, not necessarily the bigger.

Suez Environnement has paid 65 euro cents a share since its creation during the 2008 merger between Suez SA and Gaz de France SA. Veolia cut its payout to 70 cents a share from 1.21 euros before the turnaround plan.

“The dividend of 65 cents a share is an absolute floor,” Boursier said. “We hope to be in a position to progressively increase it, this may take some years but the dividend will not be cut.”

Suez and Veolia compete in Europe for municipal and industrial waste and water services and globally for large treatment installations like desalination plants. Suez is seeking to expand in faster-growing places like China, India and North Africa and move into providing services for world-spanning industrial companies.

Over the coming decade, new competitors for the French utilities are expected to emerge from China, Singapore or South Korea in addition to companies like General Electric Co. and Siemens AG, Boursier said.

“We have defined our strategy, we have clear priorities and we strongly believe that Suez Environnement will emerge as the environmental market leader,” he said.

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