(News Bulletin 247) – The electrical equipment distribution specialist said on Sunday that it had rejected a takeover proposal from the company QXO, which wants to build an empire in this sector. The stock is taking off, with this incident highlighting Rexel’s undervaluation on the stock market.

Not very often in the spotlight on the stock market, Rexel stands out this Monday. The specialist in the distribution of electrical equipment, whose origins date back to 1967 with the Compagnie de distribution électrique (CDME), is up 9.5% and is recording the biggest increase in the SBF 120.

The jump comes as Rexel issued a press release on Sunday. Following a Reuters report, the company confirmed that it had been approached by the US group QXO early last week. The US company sent a preliminary, unsolicited and non-binding takeover offer to Rexel’s board of directors, based on a price ranging from €28 to €28.4 per share.

Compared to Friday’s closing price (22.97 euros), this price represents a theoretical premium of 21.9% to 23.6%.

QXO is an American company whose CEO is Brad Jacobs, a billionaire entrepreneur (his fortune is estimated at 9 billion dollars by Forbes) who succeeded in creating XPO Logistics, an American logistics giant, and then United Rentals, a company specializing in construction equipment.

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With QXO, the billionaire intends, this time, to build a giant in the distribution of construction materials, through major acquisitions. The entrepreneur had already deployed this strategy with the previous companies he had created.

In July, QXO raised $620 billion in a private offering, giving it $5 billion in cash available for acquisitions, according to the Wall Street Journal. The company said at the time it wanted to generate tens of billions of dollars in revenue from future acquisitions.

During this fundraising, QXO had also benefited from an investment of 150 million dollars from Affinity Partners, a company founded by Jared Kushner, Ivanka Trump’s husband and Donald Trump’s son-in-law. Jared Kushner also joined QXO’s board of directors at that time.

Returning to Rexel, the company announced on Sunday that it had rejected QXO’s advances, judging that its proposal “significantly undervalues ​​the company” and “does not reflect the potential for value creation” linked to the execution of its strategic plan “Power up 25”. The company added that it would not make any further comment.

It seems, in fact, that the price offered by QXO is not very generous. A premium of 21.9% and 23.6% compared to the last price remains much lower than general practice. For example, in 2023, the median for public offers on the Paris stock market was 42.9%.

Furthermore, this premium “is only 14% on the average price of the last six months (24.76 euros) and it does not reach the recent peak (28.88 euros on May 27)”, contextualizes Oddo BHF.

According to sources close to Reuters, QXO has no intention of improving its offer. Unless there is a major twist, the matter should therefore remain there.

A discount to fill

This does not prevent the stock from being propelled on the stock market following this incident. “The Rexel share has lost around 7% since the beginning of the year (at Friday’s close, Editor’s note) and is still not very popular with some Anglo-Saxon investors. QXO’s advances have the merit of recalling the qualities of the group, which has improved many things since 2016, in particular its profitability, and will benefit from the dynamics of the energy transition”, judges a financial intermediary. “The company has suffered from its exposure to the building sector in recent times and it is possible that QXO approached Rexel to play the cycle turnaround”, he adds.

“We are not surprised by the decision of the board of directors. Rexel presents a discount of 21% compared to the average of the last 10 years on the basis of a forward VE/EBIT 12m multiple (the multiple of enterprise value reported to operating profit over twelve rolling months, Editor’s note)”, underlines, for its part, Oddo BHF.

“The group’s efforts to improve its margin (target of 7% adjusted operating margin over a three- to five-year horizon) and its positioning in segments exposed to the electrification theme (EV, PV, HVAC and industrial automation)* should enable it to pay itself, in the medium/long term, with a premium compared to its historical average,” the research office continues.

Oddo BHF, however, remains ‘neutral’ on the issue, citing short-term dynamics and the residential construction market (26% of the group’s turnover), which is suffering from poor prospects.