Geo Week News

July 24, 2015

What's the Deal With Aveva's "Reverse Merger"?

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This week, Aveva made a confusing announcement. The company is undertaking a “reverse merger” with French company Schneider Electric. What does that mean, exactly?

In common use, the term “reverse merger” describes a deal undertaken by a private company that wants to go public without putting itself through the filing process and effort of going public themselves. As The Motley Fool explains, “a private company that wants to go public will be acquired by a shell company that has no operations, but does have registration as a public company. In that way, the private company morphs into the public one. This method is also called backdoor registration.”

That doesn’t seem to be the case here, however, as both companies are publicly traded and Aveva is definitely not a shell company. Something similar is happening, though.

Here, Schneider Electric is performing a reverse merger with Aveva. The deal goes down so that Aveva technically acquires Schneider, bringing the company under the umbrella of the Aveva Group.

In the process, however, Schneider gives Aveva £550 million and receives 74 million shares of the Aveva Group. These shares are worth about £1.3 billion and give Schneider a 53% stake, or a majority.

Aveva receives £500 million to distribute to its shareholders.

According to Richard Longdon, Aveva chief executive, there was never a deal on the table for a traditional purchase of Aveva. He explained that Schneider structured the deal in this way to retain more flexibility to make further acquisitions.

Seeking Alpha describes the reverse merger as “part of Schneider’s strategy of shifting from being a manufacturer of electrical devices and automation equipment to an integrated provider of bundled deals, including equipment, services and software, to industry.” 

Longdon explained that the deal is also enticing for Aveva, as it will “diversify Aveva’s end markets, significantly enhancing its position in oil and gas, power and marine, but also adding a big presence in other verticals including chemicals, food and beverage, mining water and pharmaceuticals.”

Though the current Aveva board will not be replaced, two board members will be added on from Schneider Electric. In two years, Schneider will be able to increase its stake in Aveva and appoint a new Aveva chairman.

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