A decisive step in the new Schneider Organization
On April 28, the Boards of Directors of Schneider SA and Merlin Gerin SA approved the merger of the two companies, in a move that will have far-reaching consequences for Groupe Schneider's organization.
1. OBJECTIVES OF THE MERGER
A. An Integrated Manufacturing Base
Since 1988, Groupe Schneider has engaged in an extensive acquisitions program, which has invested a total of FRF 23 billion in new non-financial assets. One of the most important purchases was US-based Square D, which propelled the Group to global market leadership. Today, Groupe Schneider has decided to strategically focus on integrating and streamlining its expanded manufacturing organization.
All of Groupe Schneider's operating companies are rapidly globalizing. By folding the Group's manufacturing and marketing units into a single organization under the same management in each country or geographic region, the merger is expected to enhance efficiency, productivity and profitability.
B. Optimized Financial Flows
The unhindered movement of cash flows through the Group will widen its access to medium and long-term financing and make it easier to manage cash and hedge exchange rate risk. It will also enable the Group to manage a single capital budget instead of consolidating unit investment programs, which is still the primary system in effect today. This will make it considerably easier to approve capital investment projects on the basis of their return.
Taxwise, the consolidation of all of the Group's French manufacturing companies into one unit, and the merger of all of the Merlin Gerin, Telemecanique and Square D subsidiaries in each country will have a favorable impact on the Group's profits earning capacity.
Clearly, these industrial and financial objectives could not be fully achieved within the Group's current organization, primarily because of the companies' differing share-holder structures.
2. FINANCIAL ASPECTS OF THE MERGER
A. Terms of the merger
The merger will be carried out through an exchange of shares, on the basis on four Schneider shares for five Merlin Gerin shares. This 80% parity has been approved by both Boards and will be submitted to the French Mergers Commission and Stock Exchange authorities. It is based on the relationship between two financial elements:
- The price of the two companies' shares in recent months, whose ratio has consistently hovered at around 78%.
- The two companies' forecasted earnings before exceptional items and goodwill, which provide a clear picture of their future economic performance.
The exchange parity is also equal to the relationship between the two companies' 1991 dividend. It is noticeably higher than the relationship between the two companies' cash flow. Lastly, it offers a slight over-market premium to Merlin Gerin shareholders.
B. Related transactions
The debt taken on to acquire Telemecanique and currently carried by Fitelem as well as Telemecanique's interest in Square D will be transferred to Groupe Schneider, in a transaction similar to the one carried out for Merlin Gerin.
All of Merlin Gerin's and Telemecanique's non-French subsidiaries will be reorganized into three geographical business units, for Europe (outside France), North America and the rest of the world. Whenever possible (in particular from a tax point of view), subsidiaries in each country will be merged into a single organization.
C. Enhancing the quality of Schneider shares
The merger offers all Group shareholders a number of important advantages:
- The Group's global scope will help significantly widen the market for Schneider shares and attract many investors, particular from outside France.
- Schneider's control of all of its manufacturing activities, as well as the streamlining of their organization and of the Group's financial structures, will remove the last shreds of the share's reputation as a "conglomerate stock" and help eliminate a discount that is no longer warranted.
- The merger will slightly improve Schneider's earnings per share before amortization of goodwill, taking into account the fact that Merlin Gerin did not amortize the total amount of goodwill related to its interest.
3. THE POST-MERGER LEGAL AND FINANCIAL ORGANIZATION
To avoid any tax costs associated with the planned restructurings and enable them to be implemented according to a schedule compatible with operational requirements, Schneider will be reorganized over two years, 1992 and 1993. The Group's French companies will file a consolidated tax return as of January 1, 1993. As a result, some temporary adjustments will be necessary in the balance sheets of the concerned units.
The enclosed organization charts illustrate the major aspects of the two organization phases.
4. THE ORGANIZATION OF SCHNEIDER INDUSTRIE
The new organization has been designed in response to Schneider's objectives as a world-class corporation. It is based on a matrix composed of 13 business units (see enclosures) and three geographic areas, which are currently being organized.
- Schneider North American Operations has already been set up.
- Schneider Europe will manage all European operations outside France, including Eastern Europe and members of the ex-Soviet Union.
- Schneider International will include all operations in Asia, South America, the Middle East, Africa, Australia and the rest of the world.
In France, the new Merlin Gerin and Telemecanique companies will continue to manage their respective businesses.
The Schneider Industrie Executive Committee will be composed of Didier Pineau-Valencienne, Chairman, and the following members:
- Jean-Louis Andreu: who will be nominated for the position of Chairman and Chief Executive Officer of Telemecanique and appointed General Manager of Schneider International.
- Charles Denny: President and Chief Executive Officer of Schneider North American Operations.
- Lorenzo Folio: will supervise strategic planning, scientific and technical matters, and manufacturing for Schneider Industrie and Schneider Entreprise (Spie Batignolles). He will be appointed Executive Vice President of Schneider and nominated for the position of Vice Chairman of Square D.
Robert Jeanteur: has been hired as Executive Vice President of Schneider and Vice-Chairman of the Executive Committee. Among other duties, he will supervise human resources management and the implementation of the new organization.
Daniel Melin: will be nominated for the positions of Chairman and Chief Executive Officer of Merlin Gerin and of Chairman and Chief Executive Officer of Jeumont-Schneider Industrie. He will also be appointed General Manager of Schneider Europe.
Michel Staib: is Executive Vice President of Schneider, in charge of supervising financial control and external and internal communications.
This new organization will take effect on June 1, 1992.