Prysmian agreed to buy US rival General Cable Corp in a $3bn deal that strengthens its position as the world’s largest maker of industrial cables and extends a wave of consolidation in the market.
Milan-based Prysmian will pay $30 a share in cash, it said in a statement yesterday. That represents a premium of about 81% to the General Cable closing price of on July 14, the trading day before the Highland Heights, Kentucky-based firm said it was reviewing strategic options including a sale.
The deal will increase Prysmian’s size by more than 40% and give the Italian company a much larger footprint in North America. Chief executive officer Valerio Battista vowed to keep going as Prysmian seeks to remain the top player in the industry as competitors get swallowed up.
“We are going to create the largest cable maker in an industry that will be consolidated,” Battista said on a call with reporters. “North America is representing 59% of the sales of General Cable, whereas for Prysmian it’s only 15%. That’s the key chapter of the combination.”
Prysmian declined 2.7% to €27.74 at 9:20am in Milan, giving it a market value of about €6bn ($7.1bn). General Cable was set to rise after closing at $21.80 on Friday in the US, 27% below the price announced yesterday.
The agreement follows Danish competitor NKT’s €836mn acquisition of ABB’s high-voltage cable business, and increases the lead held by the Italian supplier to the energy and telecommunications industries over rivals including France’s Nexans. General Cable said in July it was considering putting itself up for sale because it expects companies in the industry to combine.
Bloomberg News reported Prysmian’s interest in General Cable in October. Nexans and NKT also submitted bids for the cable manufacturer, people familiar with the matter said at the time. The world’s 10 largest producers of wires and cable by revenue account for just 26% of the global market, according to an NKT presentation on September 20.
Prysmian will be about twice as large as Nexans after the deal, Natixis analyst Alain William said in a note to clients. “This transaction is good news from an industry consolidation standpoint and reinforces Prysmian position in the global cable sector,” he said.
Prysmian will fund the acquisition with cash reserves and new and existing debt. The company will also consider a rights issue over the next 12 months to raise about €500mn that will help the company pursue additional acquisitions, it said.
The deal is expected to generate pre-tax cost savings of about €150mn within five years following closing. The combined group will be present in more than 50 countries with approximately 31,000 employees.
Prysmian was advised by Goldman Sachs International and Mediobanca, while JPMorgan Securities advised General Cable.
Prysmian shares have gained 14% this year, compared with a 16% rise on the FTSE MIB Index.