By Sarah Young and Paul Sandle
LONDON (Reuters) - France's Schneider Electric (PA:SCHN) has pulled out of the planned acquisition of a majority of Britain's Aveva (L:AVV), saying the two companies had mutually agreed that the proposed deal would be too risky and expensive.
Shares in Aveva, a maker of software to design oil rigs, ships and nuclear power stations, crashed 34 percent to 1,431 pence, despite speculation another bidder could emerge for the company, which is being hit by weakness in the oil and gas industries.
Analysts at brokerage Jefferies said another suitor could come forward, having previously named Siemens (DE:SIEGn) as a potential acquirer, while Investec said the possibility of further M&A could help support the stock after its initial fall.
Shares in Schneider, which makes electric components and energy management systems, edged up 0.2 percent to 52.5 euros.
Aveva, founded in 1967 as a spin-off from Cambridge University, said the talks were called off by mutual consent, adding that the combination would have been too risky due to the complex structure of the deal.
"The anticipated uplift in shareholder value was unlikely to have been realised to the extent previously considered," it said.
Kepler Cheuvreux analyst William Mackie said calling off the deal was a good move for Schneider. "It avoids pursuit of a complex industrial software strategy and consent to a premium price at a time when Aveva's core markets are experiencing deteriorating demand."
Aveva and Schneider had in July agreed a deal that would have involved Schneider paying 550 million pounds towards the issue of new shares in Aveva, to take a 53.5 percent stake in an enlarged group also comprising Schneider's software operations.
The tie-up would have reduced Aveva's exposure to oil and gas markets, source of about 45 percent of its revenue, where lower oil prices have cut demand for rigs design work.
Under the agreed terms, Aveva shareholders would have received about 10 pounds a share in cash, brokers said in July, which combined with a 15 percent profit boost from cost savings valued the deal at 2,600 pence a share, a 47 percent premium.
The stock's decline on Tuesday left it at a level last seen in February, having jumped to a four-year high when the deal was announced.
Aveva said no break fees were payable by either party, adding its expectations for the full year remained the same. Lazard (N:LAZ) had advised Aveva on the deal, while Morgan Stanley (N:MS) and Ondra Partners advised Schneider.