Sodexo: rumors of Aramark takeover weigh on share

(CercleFinance.com) - Sodexo shares fell sharply on the Paris Bourse on Thursday, as Bloomberg reported on a possible takeover of the US foodservices group Aramark.


In mid-morning trading the stock was down over 7%, the second biggest faller on the SBF 120 index behind Ubisoft (-17%), and one of the worst performers on the STOXX 600.

In an article published early this morning, Bloomberg reports that Sodexo is considering acquiring its American competitor Aramark in order to revitalise its international growth.

According to the financial news agency, which cites sources close to the matter, the French group has regularly discussed the possibility of a planned merger with Aramark in recent months.

In a reaction note, analysts at RBC said they were not surprised by these speculations, arguing that both companies have now refocused on their core businesses following the disposal of their non-core assets.

We believe that an enlarged perimeter would enable Sodexo to benefit from a more attractive mix, both in geographical and sectoral terms, while strengthening its ability to source under favorable conditions, the Canadian broker explains.

Oddo BFH's teams also recognize that such an operation would have the merit of consolidating Sodexo's presence in the United States, but also point to a whole series of risks associated with a possible transaction.

Given that Sodexo is currently number two in the US market and Aramark number three, behind leader Compass, obtaining regulatory approvals could prove complicated, warns the private bank.

Oddo is also concerned about the financing terms of such an acquisition, which analysts estimate at around 13 billion euros, while Sodexo currently has only E2.6bn in cash.

This presupposes a capital increase via the issue of new shares to Aramark shareholders to finance the transaction, the broker points out.

This, in turn, would lead to significant dilution for existing shareholders, which we estimate at around 20%/25% in terms of earnings per share (EPS), Oddo adds.

Finally, the investment bank concludes that the integration risk is very real, since both groups each have hundreds of thousands of employees, a dimension that Sodexo has never had to face before in its mergers & acquisitions (M&A) operations.


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