Schneider Electric and Clipsal Industries have signed an agreement for the formation of a 50/50 joint venture to manufacture and distribute electrical wiring devices in Asia. Simultaneously, Schneider Electric has signed an agreement to acquire ownership of the electrical wiring devices business of Gerard Industries in Australia from Clipsal Industries and the Gerard Family.
These two transactions respond to three key aspects of Schneider Electric's strategy: the enhancement of its presence in Asia Pacific, the acceleration of growth in the residential and buildings markets and the widening of its offer in the electrical wiring devices field.
A joint venture will be formed between Schneider Electric and Clipsal Industries, which currently holds a long term exclusive right to the Clipsal trademark for Asia. Clipsal Industries will contribute to the joint venture all its electrical wiring devices and installation systems businesses in Asia. Schneider Electric will contribute to the joint venture its Asian operations in electrical wiring devices. The joint venture will have a significant presence in China, Hong Kong, Singapore, Malaysia, Indonesia, Vietnam and Middle-East and is expected to generate, on a pro-forma basis, annual revenues of around Ç100M.
Corporate governance and management principles are defined in a joint venture agreement, which also contains put and call options stipulating the terms and conditions of a future acquisition by Schneider Electric of the remaining 50% of the joint venture's share capital. The joint venture company is to be incorporated in Hong Kong and will be called Clipsal Asia Holdings. To avoid any future confusion, Clipsal Industries will change its corporate name immediately following completion of the transaction.
Acquisition of Gerard Industries electrical wiring devices business
On completion, Schneider Electric will acquire Gerard Industries' electrical wiring devices business (located in Australia, New Zealand, South Africa and India), as well as the worldwide ownership of the Clipsal brand name, including all related intellectual property. This business presently generates annual net sales of around Ç250M, with a pro-forma operating income of around 14%.
The completion of both transactions is inter-dependent and subject to various conditions, including regulatory approvals (such as anti-trust clearances in Australia, New Zealand and South Africa) as well as Clipsal Industries' shareholders approval. The final consideration for each transaction will be confirmed following a post-completion audit.
Business prospects
The joint venture will continue selling the Clipsal products in Asia, whilst Schneider Electric will sell these products, mainly through Gerard Industries' existing distribution channels, outside of Asia. Schneider Electric chairman and CEO, Henri Lachmann commented: "The formation of the joint venture will enable Clipsal Industries and Schneider Electric to join forces in rapidly growing Asian markets, while the acquisition of the Gerard Industries Electrical Wiring Devices business will complement Schneider Electric's offer in the highly competitive Pacific market. These are two key areas where Schneider Electric aims to expand its presence in the Residential and Buildings markets."
Transaction impact
The acquisition of Gerard Industries electrical wiring devices business will be satisfied by a cash payment of Ç450M. The share in the joint venture with Clipsal Industries will be financed through the contribution of assets, the sale of Schneider Electric's current 18,7% stake in Clipsal Industries and a Ç5M cash outlay.
The two transactions are expected to have a combined neutral impact on Schneider Electric's earnings per share (after goodwill amortisation) in 2004 and a positive effect from 2005.
About Schneider Electric
Schneider Electric is a world leading power and control specialist with brands such as Merlin Gerin, Square D and Telemecanique. The company offers a comprehensive range of products and services for markets in the residential, buildings, industry, energy and infrastructure sectors.
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