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DEALTALK-USG could be Adecco's next acquisition target

Published 09/25/2009, 07:57 AM
Updated 09/25/2009, 08:00 AM

* Adecco says not too many opportunities in Benelux

* Analysts see possibilities for a deal

* USG People shares rise as much as 9 percent

By Harro ten Wolde and Aaron Gray-Block

AMSTERDAM, Sept 25 (Reuters) - Dutch staffing firm USG People NV may be the next acquisition target of Swiss staffing giant Adecco as it looks to boost its third-ranked position in the Benelux market.

New speculation was sparked on Friday by Adecco Northern Europe chief Alain Dehaze, who told Dutch daily Het Financieele Dagblad the Benelux was a top region for Adecco and to gain a better position there were not many opportunities.

"Although we have still have our doubts on a takeover, it has never been this concrete," said RBS analyst Mark Pieter de Boer.

Shares in USG People rose more than 9 percent in early trading to be the top gainer in Amsterdam, but later eased off intraday highs to reflect some doubt about a deal.

But at 1108 GMT, they were still up 4.4 percent at 14.405 euros, valuing the company at about 1 billion euros ($1.47 billion). Shares in smaller Dutch peer Brunel also lifted amid the sector-wide M&A speculation and were up 5.9 percent.

Adecco did not comment on the Dutch newspaper story.

Earlier this week though, Adecco Chief Executive Patrick de Maeseneire told the Financial Times newspaper he saw some buying opportunities.

"Right now, we have a window, because companies are reasonably valued," de Maeseneire said.

Analysts warn that despite signs of a recovery among European staffing firms, they are trading at too high a price given the likelihood of persistent economic weakness.

RBS's de Boer notes, however, that USG shares are undervalued and could be worth between 17 euros and 20 euros based on the 8 times Earnings Before Interest Tax Depreciation and Amortization (EBITDA) that Randstad paid for Dutch rival Vedior last year.

Shares in USG, the second-biggest staffing company in the Benelux behind Randstad, have risen 63.6 percent this year, underperforming a 75 percent rise in the Amsterdam midcap index . Randstad shares have doubled in the same period.

USG shares trade at 11 times expected 2009 EBITDA and almost 9 times next year's, while Randstad shares trade at almost 13 times for 2009 and 12 times next year's. Adecco shares trade at multiples of 15 and 13 of this and next year, respectively.

Petercam analyst Thijs Berkelder said USG People could be worth between 18 and 20 euros assuming that the European staffing sector has passed its bottom and that USG People in three to five years will gradually return to old EBITA margin levels of 6-7 percent.

But Addeco would have to offer more than 20 euros to convince Alex Mulder -- member of the USG board of directors, USG founder and owner of more than 20 percent of USG shares -- to agree to a takeover bid.

RISK TO M&A HOPES

On the downside, Dehaze, a former executive at Belgian staffing company Solvus, which was acquired by USG in 2005, said USG People's focus does not entirely match Adecco's, which focuses on professional staffing.

USG People has a 60 percent focus on general staffing and only 40 percent on tertiary-educated workers, he said.

USG has also set up a poison pill construction, winning in December shareholder approval to issue preference shares to a company-loyal foundation, strengthening its defences against any potential takeover bid that could be launched due to its low valuation.

Similar tactics by Dutch semiconductor firm ASM International, however, during a battle with activist shareholders ran into problems when an Amsterdam commercial court in August ordered an investigation into the steps the company took last year to preserve its independence.

USG People is also looking for a new chief executive after Ron Icke resigned in July in a difference of opinion over strategy, and no appointment has been announced. Any decision on future strategy may therefore need to wait until a new CEO is found.

SNS Securities analyst Frank van Wijk said he does not rule out a takeover, but does not believe USG is Adecco's first acquisition choice because of its generalist operations.

But in terms of its strong geographical fit, he said such a merger would make sense.

Petercam's Berkelder notes, however, that without issuing new shares Adecco's net debt would rise to some 2.4 billion euros which -- in combination with an expected EBITDA, including USG, of some 600 million euros -- would be much too high at 4 times EBITDA.

"The deal can only be done if it (for a part) is a share deal," Berkelder said. (Editing by Rupert Winchester)

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