AVEVA Group plc Surges 5% On Merger Talks

Following press speculation, AVEVA Group plc (LON: AVV) confirms it is in merger talks


Shares in AVEVA Group plc (LON: AVV) (LSE: AVV.L) moved 5% higher today after it released an announcement which confirmed press speculation that it has received a revised, conditional proposal from Schneider Electric. The proposal is for AVEVA to combine with Schneider Electric’s Software Business, with new AVEVA shares being issued to Schneider Electric in return.

As was the case under previous negotiations, the deal would also see a significant cash sum being paid to AVEVA’s shareholders from Schneider Electric. Although the proposed deal would see AVEVA be majority-owned by Schneider Electric, it still intends to remain listed in the UK.

In spite of today’s share price rise, AVEVA points out in today’s update that there is no guarantee of a deal being finalised between the two companies. As was the case with previous discussions, they ultimately led to no deal and while they have now been revived, ultimately an agreement may not be reached. Therefore, while the market seems to be somewhat optimistic regarding discussions between AVEVA’s management team with their counterparts at Schneider Electric, as highlighted by today’s share price rise, the talks could once again stall.

With AVEVA trading on a P/E of 27.3, it seems to already trade at a significant premium to a number of its peers. In my view, this means that the market has already priced in to a substantial degree a successful outcome from the talks, which means that AVEVA’s risk/reward ratio may not be all that appealing.

AVEVA’s forecasts indicate that it remains a solid business with a sound future, but trading with such a high valuation means that disappointments in the short run could lead to a share price fall. So, while I believe that AVEVA remains a high quality company, I think that it does not appear to offer sufficiently good value for money to make it worth buying.

More details on today’s announcement from AVEVA can be found here.

The author does not own shares in AVEVA at the time of writing.

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