Prysmian prepares to take over Encore Wire for an equivalent value of approximately 3,9 billion euros ($4,15 billion). It's about thethe largest acquisition by value in the history of Prysmian which will allow it to increase its presence in North America. The purchase price represents a 11% premium compared to the stock's close Friday at $260,98. This morning the Prysmian title on Piazza Affari it jumped by 3,63% to 50,28, while the Ftse Eb it rises by only 0,9%.
The company, listed on the FtseMib and active in the industrial systems sector cable for energy and telecommunications, communicated that it had stipulated a merger agreement on the basis of which it will acquire Encore Wire, a company listed on Nasdaq manufacturer of a wide range of electric cables in copper and aluminum for the production and distribution of energy.
Prysmian is led byto the outgoing Valerio Battista, while the board of directors has designated Massimo Battaini as the next CEO and we are now awaiting the green light from the assembly on April 18th. The Italian cable group offered $290 per share, a price that values the Encore Wire for approx 3,9 billion euros (Enterprise Value) which represents a multiple of 8,2x Ev/2023A Ebitda and 6,3x Ev/2023A Ebitda including the estimate of fully operational synergies. The transaction, the company communicates, will come funded through a mix of available cash (1,1 billion euros) and new debt (3,4 billion euros). The pro-forma post-acquisition net financial position will be 5,1 billion, i.e. 2,4 times the debt ratio net/adjusted ebitda. Prysmian expects to return by 2027 to a nd/ebitda ratio similar to the December 2023 level, i.e. to drop to 0,7 times.
The operation will generate 140 million in synergies, eps +30%
Encore Wire is a group with 1.629 employees, specialized in the production of copper and aluminum electrical cables for energy distribution, with "a wide range of products and low production costs, made in the only integrated production site in Texas", explains Prysmian . The stock is worth 4,12 billion in capitalization on Wall Street and has risen by almost 22% since the beginning of the year. The operation, according to Prysmian, creates the possibility of generate approximately 140 million in synergies when fully operational, before tax effects, in four years following completion, with integration costs of 154-168 million. The Italian group expects the integration to be accretive in terms of eps (earning per share) for 30% including the impact of synergies when fully operational and for 20% without considering the impact of synergies.
Following the completion of the Transaction, Prysmian expects to maintain a significant presence at Encore Wire's single-model, integrated site, located in McKinney, IN Texas.
Il completion of the operation, which was unanimously approved by the boards of directors of both companies and recommended to its shareholders by the Board of Directors of Encore Wire, is expected in second half of the 2024, subject to the approval of Encore Wire shareholders representing at least the majority of the capital with voting rights, the approval of the competent authorities and the occurrence of other conditions precedent typical for this type of transaction.
Analysts' opinion
Encore Wire recorded in 2023 revenues of $2,6 billion (3 billion in 2022), an ebitda of 517 million (951 million in 2022) and a net profit of 372 million. Based on Bloomberg estimates, which sees Encore Wire's 2024-25 ebitda at around 368-364 million, the multiple paid (pre-synergies) would be approx 11 times the EV/EBITDA ratio and 16 times the P/E, analysts say Equita Sim. Prsymian instead travels with an EV/EBITDA ratio of 8,8 times and a PE of 16,3 times. The operation, according to Equita, is positive from an industrial point of view since it "strengthens Prysmian's exposure to the North American market (the weight of the Italian group in North America goes from 40% to 55% of the ebitda)". The multiple paid, according to the Milanese SIM, “It is reasonable considering the high synergies".
From a first simulation, incorporating 60% of the synergies communicated to 2026, analysts estimate that Prysmian's expected adjusted p/e to 2026 would fall by 15 to 12 times, but with an increase in financial leverage. Sim confirms the Hold rating and the target price of 48 euros on the Prysmian stock.
