Rexel to Buy Hagemeyer for EU3.1 Billion, Sell Units (Update4)

Rexel, based in Paris, raised its bid for Naarden, Netherlands-based Hagemeyer to 4.85 euros a share, 5 percent more than its previous offer and 68 percent higher than the close on Sept. 27, when takeover speculation began.

Hagemeyer will be split up following the takeover, with Rexel selling U.S. and Asian units to rival Sonepar SA, which also bid for the Dutch company. All three buy switches, cables and plugs from electrical-equipment makers such as Schneider Electric SA and sell them on to builders or industrial customers including Siemens AG. Merging may generate savings equal to 2 percent of sales, Credit Suisse analyst George Gregory said.

``With all the likely players involved and apparently in agreement, we expect that the takeover game has ended,'' said Fernand de Boer, an analyst at Petercam in Amsterdam with a ``sell'' recommendation on Hagemeyer shares. ``We do not expect a higher bid or other bidders to emerge,'' he said in a note.

Hagemeyer rose as much as 12 cents, or 2.6 percent, to 4.78 euros in Amsterdam trading. The stock closed at 4.70 euros. Rexel rose 38 cents, or 2.7 percent, to 14.58 euros in Paris.

The deal with Sonepar, which has agreed to tender its 10.49 percent holding, helped avert a bidding war. Hagemeyer rejected Sonepar's 4.25 euros a share proposal and an earlier 4.60-euro offer from Rexel.

Rapid Due Diligence

Negotiations accelerated over the course of the weekend and a final agreement depends on due diligence, which should end ``fairly rapidly, within weeks,'' Rexel external spokesman Thomas Kamm said.

``We believe the deal would dilute Rexel's exposure to the deteriorating U.S. market and be highly complementary in Europe given limited regional overlap,'' said Credit Suisse's Gregory, who has a ``neutral'' rating on Rexel. The return on investment may exceed 10 percent within three years, including deferred tax assets, he said in a note.

Rexel plans to keep Hagemeyer's units in countries including the Netherlands, Germany, the U.K., Belgium, Spain, Ireland, Finland, Norway and Poland.

U.S. Slowdown

North America accounted for 47 percent of Rexel's revenue in 2006, with three-quarters of that coming from the U.S. Construction spending there has fallen in four of the nine months through September, driven by cutbacks in residential building work.

``While the raised bid preserves synergies, it allows Rexel to get the recommendation of Hagemeyer's board and the right to conduct due diligence,'' said Natixis analyst Ludovic Debailleux, who has a add rating on Rexel. ``It also releases part of the pressure coming from hedge funds.''

Founded in 1900 as a Dutch East Indies trading company, Hagemeyer's failure to manage the distribution of electrical products in Britain pushed the 107-year-old company close to bankruptcy and forced it to raise new capital in 2004.

Ignacio Pedrosa, spokesman for Bestinver Asset Management, also said today by telephone that he supported Hagemeyer's management. Bestinver has about 5 percent of Hagemeyer.

The new offer from Rexel is fully financed by banks. Rexel has secured 3.1 billion euros in bank financing and doesn't plan to sell shares, spokesman Kamm said. The loans will involve six banks, including HSBC Holdings Plc, Royal Bank of Scotland Group Plc, ING Groep NV and France's Credit Industriel et Commercial, Natixis and Credit Agricole SA's Calyon.

Rexel is 73.7 percent owned by Ray Investment SARL, a Luxembourg-based company controlled by Clayton Dubilier & Rice Inc., Eurazeo SA, and Merrill Lynch Global Private Equity Group.

``This is a really good deal for Rexel,'' said Wouter Rosingh, managing director of the Hermes European Focus Fund, which owns 5.3 percent of Hagemeyer. ``The recent credit crunch has closed the lending window and kept private equity out of the game.''

-- With reporting of Jeroen Molenaar in Amsterdam. Editor: Noel (rml).