French power equipment company Schneider Electric is buying smart grid company Telvent for roughly $2 billion to strengthen its portfolio in the growing smart grid sector.

Schneider Electric will make a cash tender offer for all of Telvent’s shares at a price of $40 per share, which represents a premium of 36% to Telvent’s average share price over the last thress months. Abengoa SA has irrevocably agreed to tender its 40% shareholding in Telvent into the offer. Certain members of management of Abengoa SA and Telvent, who collectively hold approximately 1.5% of Telvent’s capital, have also agreed to tender their shares.

The transaction has been approved by the board of directors of Telvent, which formed a special committee to review the transaction on behalf of the public shareholders of Telvent.

Based in Madrid and listed on NASDAQ, Telvent is a software and IT solution provider of real-time management of smart infrastructures. It provides its customers with increased reliability and flexibility of power distribution networks as well as operational and energy efficiency of their infrastructures.

By acquiring Telvent, Schneider Electric will integrate a value-added software platform that presents a good fit with its own range in field device control and operation management software for the smart grid and efficient infrastructures. The group will also double its overall software development competencies and enhance its IT integration and software service capability, including weather services.

• Smart Grid: Schneider Electric will be able to offer electrical utility customers complete substation automation and smart grid software suite: DMS (Distribution Management System), OMS (Outage Management System), SCADA (Supervisory Control And Data Acquisition), MDM (Meter Data Management), GIS (Geographical Information System).
• Complementary geographical coverage: The complementary geographical strength of the two companies will lead to significant synergies in the utilities, oil & gas, water and transportation markets: Schneider Electric can build on Telvent’s strong presence in North America and Latin America. Telvent would be able to enter into many more new economies, notably in Asia-Pacific, Middle East, Russia and expand their presence more widely in Western Europe.

Telvent employs more than 6,000 people on a worldwide basis and operates in more than 19 countries. It reported 2010 sales of approximately €753 million and adjusted EBITDA of €115 million. Its key markets are in Europe (42% of 2010 sales), North America (35%) and Latin America (16%). Its presence in the other regions of the world is more limited (7% of 2010 sales) but growing. Its five operating segments are: Energy (34% of sales), Transportation (28%), Environment (8%), Global Services (19%) and Agriculture (11%).

Schneider Electric expects the transaction to generate revenue synergies of €250-300 million by 2016 thanks to enlarged offerings, complementary customer bases and geographical exposure. The estimated impact on EBITA is of approximately €30-35 million by 2016. The group also aims to achieve cost efficiencies which could improve EBITA by up to €20-25 million by 2016.

In total, the full potential impact of revenue and cost synergies on EBITA is estimated to reach € 50-60 million by 2016, of which two-thirds should be achieved by 2014.

Assuming the acquisition of 100% of Telvent at an offer price of $40 per Telvent share, the total transaction value is approximately US$2.0 billion (~€1.4 billion) on an enterprise value basis, including the purchase by Schneider Electric of Telvent’s 5.50% senior subordinated convertible notes on an as converted basis. The purchase price will be fully financed with cash and represents a multiple of about 12x the 2011 consensus EBITDA.

The transaction is subject to customary closing conditions, including the receipt of regulatory approvals. The transaction is expected to close in the third quarter of 2011.