France's Schneider Electric denied reports it was in talks to buy Tyco International, easing worries that a takeover would overstretch its finances and causing Tyco shares to give back part of this week's advance.
Despite the statement, a picture emerged of a huge global conglomerate that is suddenly in play.
In response to market rumors, Schneider Electric announced today that it is not currently in discussion with Tyco International regarding a potential strategic transaction between the two companies, Schneider said in a statement on Wednesday.
A person with knowledge of the matter said on Tuesday that Schneider, with a market capitalization of about $45 billion, had held early talks with Tyco. The Wall Street Journal reported the French company has made a preliminary $30 billion bid for Tyco, citing people familiar with the matter.
Such reports have a veneer of credibility, Deutsche Bank analyst Nigel Coe said on Wednesday.
What is notable here is the level of detail that has been leaked into the press, Coe said in a research note.
Morgan Stanley analysts said any deal was likely to be at a premium of as much as 35 percent, implying a takeover price of about $32 billion, above Tyco's current market capitalization of about $24 billion.
With such a price tag, a Tyco takeover would be the biggest-ever industrial acquisition outside autos and transport, Thomson Reuters data shows. It would also be the second-biggest M&A deal this year, behind AT&T's $39 billion purchase of T-Mobile USA.
Morgan Stanley estimates a deal would require up to $17.2 billion of fresh equity, suggesting it could also prompt Europe's biggest-ever non-financial share issue, a record held by Enel's $16.6 billion flotation in 1999.
Shares in Schneider, which competes with Germany's Siemens and ABB of Switzerland, have fallen over 8 percent this week on concerns over the financing of a potential deal. The stock was up 0.8 percent on the day at 113.90 euros by 1355 GMT. France's CAC-40 index was up 1 percent.
Schneider has made a number of acquisitions to boost its growth, but this rumored bid is a surprise due to the size of the target. This would be huge compared to Schneider's size, said Bertrand Lamielle, head of asset management at Paris-based B*Capital, with $6.5 billion under management.
This raises questions on the company's ability to finance such a big deal and integrate Tyco, and the doubts have been reflected in Schneider's share price this week, Lamielle added.
Shares in Tyco, which has been restructuring under Chief Executive Ed Breen to refocus on its businesses of security services, fire safety systems and industrial products, were down 3.5 percent at $50.50 in Wednesday's trading on the New York Stock Exchange, a day after surging 7.4 percent.
Tyco has reinvented itself in the decade since a fraud scandal that eventually landed former CEO Dennis Kozlowski in prison. Kozlowski's high-profile criminal case featured revelations of lavish spending for extravagant home decor and a $2 million birthday party.
Tyco has sold off assets while expanding its security systems unit with the 2010 acquisition of Brink's Home Security for $1.9 billion. Security technology accounted for more than 40 percent of sales last fiscal year.
In 2007, Tyco spun off its healthcare and electronics divisions, essentially chopping the company into thirds.
Breen, CEO of Tyco since 2002, stayed on as chief of the new, smaller Tyco. He has was won plaudits on Wall Street for generating more of Tyco's sales from so-called recurring revenue, providing a steady stream of cash.
With many of its markets, such as commercial construction, poised to recover, Tyco is on the cusp of a fundamental resurgence, Sterne Agee analyst Nick Heymann said.
Given such earnings prospects and a slightly stronger valuation, Tyco's board might reasonably expect the share price to reach the mid-to-upper $70 range within two years, he said.
In essence, rather than making a formal offer which could be successfully embraced by (Tyco's board) as fairly representative of Tyco's true value, perhaps leaks about Schneider's alleged interest were designed to 'smoke out' public pressure on (the board) to support a price which could be realistically funded by Schneider, Heymann wrote in a note to clients.
Both Siemens and ABB are possible bidders for Tyco, which is parent of the ADT Worldwide security service. Fund managers said the hefty premium that Schneider was said to be offering could prevent counter-bids.
ABB declined to comment, while Siemens, which also declined to comment, has previously said it would not consider takeovers larger than the VDO auto unit it sold for 11 billion euros ($15.9 billion) in 2007.
Schneider has made a series of small to medium-sized acquisitions over the past years, many of them focused on emerging markets such as India and Russia.
Schneider's acquisition of American Power Conversion for $6.1 billion, completed in 2007, got a chilly reception from investors when it was announced, with some analysts citing pricey multiples and execution pressures.
(Additional reporting by Helen Massy-Beresford, Christian Plumb and Lionel Laurent in Paris, Emma Thomasson in Zurich and Vincent Flasseur in London; Editing by David Cowell and Derek Caney)