Cables giant Prysmian woos US rival Encore into $4bn takeover
Acquisition by a company that had been promising organic growth shows how much the sector is heating up
Encore Wire, a US manufacturer of copper and aluminum electrical wire and cables, has agreed to a takeover by Milan-based cables giant Prysmian in a deal valued at $4bn, reflecting the increasingly critical role that cable manufacturing capacity is seen as playing in the global energy transition.
Massimo Battaini, Prysmian CEO-designate, said the deal was aimed at enlarging the company’s North American presence, enhancing its portfolio, improving its geographic mix and generating synergies.
“The acquisition of Encore Wire represents a landmark moment for Prysmian and a strategic and unique opportunity to create value for our shareholders and customers,” he said.
Prysmian will pay $290 per share in cash for the acquisition, presenting Encore shareholders with a 20% premium against a 30-day volume-weighted average share price on its Nasdaq listing up to 12 April, and a premium of 11% against the actual listing on that day.
Prysmian has evolved into the world’s biggest cables company since it was spun off from the Pirelli tyre group in 2005.
Analysts expressed surprise with the deal, as Prysmian’s own guidance was suggesting as recently as last year that it would seek to pursue organic growth opportunities rather than mergers and acquisitions.
However, cables, as well as critical metals such as copper and aluminium, have been areas of growing concern to Western nations due to a growing perception of under-capacity and supply chain constraints.
These perceptions have gained even more prominence a growing number of countries set out ambitious goals for building out offshore wind capacity and expanding and modernising transmission grid infrastructure, including converter stations.
In Europe, a first wave of big cable orders under massive modernisation projects has already raised questions about the adequacy of supply capacity, one examples being the big onshore and offshore grid modernisation undertaken by TenneT, a Dutch state-owned company which owns and operates transmission infrastructure in the Netherlands and Germany.
A new subsea interconnection cable between the UK and Denmark, and another between the UK and Germany have similarly stoked up concerns about capacity.
Generous funding for grid projects is available under the provisions of US legislation such as the Inflation Reduction Act and the Bipartisan Infrastructure Law of 2021, but the Biden administration has not yet found a way to tackle delays in areas such as permitting and planning.
DNV's last Energy Transition Outlook argued that a bottleneck in transmission line infrastructure development across the US and Canada, if not addressed, will restrict progress in wind and solar installations. The global classification society's annual report asserted that the US grid must "undergo a vast expansion", increasing its capacity two and a half times by 2050.
Transition time
Prysmian’s acquisition of Encore also comes at a time of transition for Prysmian as the Milan-based group is in the process of appointing a new chief executive.
Prysmian said the terms of the transaction valued Encore at approximately €3.9bn ($4.16bn).
“We are pleased to have reached an agreement that reflects the remarkable value Encore Wire has created with our expansive single-campus model, low-cost production, centralised distribution and product innovation,” said Encore CEO Daniel Jones.
“This transaction maximises value for Encore Wire shareholders and provides an attractive premium for their shares. Encore Wire and Prysmian are two highly complementary organisations, and we anticipate a bright future for Encore Wire as part of Prysmian.
Based on pro forma aggregated results for the twelve months ended December, 2023, Prysmian said the combined group would have posted net sales of over €17.7bn, with earnings before interest, taxes, depreciation and amortisation estimated at approximately €2.1bn.
The transaction will be financed through a mix of cash on Prysmian’s Balance Sheet (€1.1bn) and newly committed debt facilities (€3.4 bn) and is expected to close in the second half of 2024.
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