France's Schneider Electric (SCHN.PA) is combining its software operations with Britain's Aveva (AVV.L) to create a business active in sectors ranging from nuclear power to pharmaceuticals and less reliant on oil and gas markets.
Schneider will pay 550 million pounds towards the issue of new shares in Aveva, a company that designs shipping, industrial plants and nuclear power stations. It will take a 53.5 percent stake in the enlarged company.
The deal will see Aveva shareholders receive about 10 pounds a share in cash in return for the French company taking control, according to brokers.
Investec, who upgraded Aveva to "Buy", calculated the payment, plus a 15 percent profit boost from cost savings, resulted in a value of about 2,600 pence a share. That would represent a 47 percent premium on Friday's close.
The tie-up reduces Aveva's exposure to oil and gas markets, the source of about 45 percent of its revenue, and where lower oil prices have cut demand for rigs designed using its software.
"This deal has a clear and compelling industrial logic," said Aveva's chief executive Richard Longdon, who will remain in charge of a group he has led since 1999.
"(It) will diversify Aveva's end markets, significantly enhancing its position in oil and gas, power and marine, but also adding a big presence in other verticals including chemicals, food and beverage, mining water and pharmaceuticals."
Shares in Aveva, which was founded in 1967 as a spin-off from Cambridge University, jumped to a four-year high of 2,344 pence on Monday morning, and they were trading up 29 percent at 2,282 pence at 1325 London time.
Shares in Schneider Electric, a much bigger group with annual revenues of 25 billion euros (£17.4 billion) last year, were trading up 0.9 percent at 64.48 euros.
The deal will more than double the size of Aveva, giving it annual revenue of about 534 million pounds and adjusted earnings of about 130 million pounds.
It will also see former assets of Britain's Invensys, bought by Schneider two years ago, united with Aveva.
Longdon said Schneider had decided to structure the deal as a reverse takeover rather than the straight acquisition that had been mooted in media reports to retain more flexibility to make further acquisitions.
"There was not an offer on the table to buy the business outright," he said.
The merged business will retain its listing on the London Stock Exchange, and Schneider Electric will need approval from Aveva's independent directors if it wanted to increase its shareholding further or to delist the group.
Lazard advised Aveva, while Morgan Stanley and Ondra Partners advised Schneider.