Schneider Electric’s $23.7bn purchase of software company PT C is tantamount to a bold call that the rules of manufacturing are undergoing dramatic change. The dismal reaction by its investors, however, is a reminder that the principles of sound corporate finance are the same as ever.
The French group justified its splurge by arguing that lines between hardware and software are blurring. Schneider’s electrical equipment generates data that its software tools can use to automatically tweak designs and make systems run more efficiently. Yet news of the deal wiped about €15bn from Schneider’s market capitalisation.
For all the excitement about smart factories and AI-related infrastructure spending, some things remain true. Schneider reckons three-quarters of the financial benefits of the merger will come from extra revenue. Only €250mn a year from actual cost savings. But the fall in Schneider’s market value suggests investors don’t merely think it has overpaid: they think its own business will be less valuable as a result. That speaks to an old-world principle: it is harder to be good at many things than one. Analysts expect Schneider’s revenue to grow by more than 10% a year for the next three years; PT C’s growth rate is not expected to hit double digits.
In other corners, investors seem willing to reward companies like Elon Musk’s Space X or the looming $2tn IPO of AI lab Anthropic. Schneider isn’t getting the same benefit of the doubt. Perhaps outside of Silicon Valley, the old standard — near-term profitability matters — still applies.
Source: Financial Times Companies · Summarized by HeadlinesBriefing