The lack of cost savings from purchasing ACS means that its operating profit will have to grow a lot to make it work.
Being fashionable costs money. That’s what the prodigal Vinci says. On Thursday it rose 3% in the stock market after agreeing to pay 4,900 million in cash to expand its share of renewables – which are in vogue – buying part of ACS. It is true that the company led by Xavier Huillard has negotiated a modest discount on the original price. But the lack of cost savings means you’ll have to grow your operating profit strongly to make it work.
The operation gives the ACS division a value of 4,200 million, after discounting 700 million of net cash. Suppose Huillard can increase the unit’s $ 375 million in annual operating profit between 2018 and 2020 by 10% in the next few years.
Taxed at 30%, that implies that the purchase could add 289 million to Huillard’s income statement, broadly in line with Vinci’s cost of capital, estimated at 7%. You will need a strong tailwind.