Schneider’s bet on a new world clashes with finance’s old rules

Schneider Electric’s $23.7bn purchase of software company PTC 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 on PTC on Monday by arguing that the lines between hardware and software are blurring. Schneider’s electrical equipment generates data that its software tools — including those it will acquire via PTC — can use to automatically tweak designs and make systems run more efficiently.

This sounds plausible enough. Yet news of the deal wiped about €15bn from Schneider’s market capitalisation. That’s roughly twice the present value of the synergies the buyer thinks it can extract from the deal.

For all the excitement about smart factories and the boom in AI-related infrastructure spending, some things remain true. One is that claims that putting two companies together will generate huge new sales opportunities should be taken with a heavy pinch of salt. Schneider reckons three-quarters of the financial benefits of the merger will come from extra revenue. Only €250mn a year — worth perhaps €2bn today — are from actual cost savings.

But the fall in Schneider’s own market value, far in excess of the premium it is offering over PTC’s undisturbed share price, suggests investors don’t merely think it has overpaid: they think its own business will be less valuable as a result of the deal.

That too speaks to an old-world principle of corporate finance: it is harder to be good at many things than one. Schneider already offers some software products, but its expertise is mainly in electrical hardware. And investors previously seemed quite happy with that. Indeed, analysts expect Schneider’s revenue to grow by more than 10 per cent a year for the next three years, according to LSEG; PTC’s growth rate is not expected to hit double digits.

Branching out into software also leaves Schneider’s stock exposed to a market that has made investors distinctly twitchy this year. Industrial software is presumably less at risk from AI-enabled alternatives than, say, enterprise software. But that doesn’t mean it’s not exposed — or that Schneider’s shares won’t now be pulled into the next software-related market wobble.

In other corners of finance, investors seem surprisingly willing to reward some companies’ long-term visions, however speculative. Think of Elon Musk’s SpaceX and its goal of putting data centres in space, or the looming $2tn initial public offering of AI lab Anthropic. Schneider isn’t getting the same benefit of the doubt, despite making a much smaller bet. Perhaps outside of Silicon Valley, the old standard — near-term profitability matters — still applies.

gaia.freydefont@ft.com