France’s Schneider Electric SA, which has its U.S. headquarters in Palatine, has made a preliminary bid for approximately $30 billion for Tyco International Ltd., according to people familiar with the matter, hoping to draw the Swiss-based conglomerate to the negotiating table.
“The board is studying the proposal,” said one person familiar with the matter. The tentative bid “was a surprise,” this person added.
As a result, Tyco officials believe “it’s going to take awhile to sort it out,” this person said. It seems highly unlikely that Tyco will accept a $30 billion offer, and directors “would undoubtedly want it to go higher,”" this person said.
There are antitrust risks to putting together Schneider and Tyco, two of the largest players in security systems. Analysts and shareholders have also begun to question the logic of what would be one of the largest cross-border transactions in years.
Schneider, which makes a range of industrial products used in electric power and systems used for electricity management, and building controls, hired J.P. Morgan Chase & Co. last fall and Bank of America Merrill Lynch in November to examine a Tyco acquisition, people familiar with the matter said.
Valuing Tyco has proved difficult, however, in part because of Tyco’s size. Switzerland-based Tyco is valued at almost $25 billion, more than half the market capitalization of Schneider, which has a market value of about $43.7 billion.
Tyco shares surged 7.4 percent Tuesday, as mounting media speculation, begun by a Bloomberg News report, has linked the two companies. The reports have also pushed Schneider shares down 7 percent since Monday, complicating a transaction.
A research note by AllianceBernstein said the strategic logic for Tyco “appears stretched” and would “likely make Schneider’s capital structure unattractive. Shareholders would show considerable opposition.”
There are potential tax consequences to a a deal that could be a hurdle, said people familiar with the matter. What’s more, a large cross-border transaction faces a number of cultural and management challenges. The 2006 merger between France’s Alcatel and Lucent Technologies of the U.S. has proved to be a difficult combination for both sides.