Metso Rang In The New Year With Valmet Spinoff

After a few stops in Australia, the international spinoff (or demerger as the rest of the world calls them) tour continues in Europe with Metso’s (OTC:MXCYY) recent separation of its pulp, paper and power business. The demerger was registered on December 31st and shares in the new company, Valmet Corporation (HLSE:VALMT), began trading on the NASDAQ OMX Helsinki on January 2nd. Metso shareholders should have received 1 share of Valmet for every Metso share owned.

The move is designed to help both companies ‘capitalize on their strengths in their respective markets faster and more efficiently,’ which just shows that the BS ‘corporate speak’ regarding spinoffs is truly global. Valmet, which develops and supplies technologies to the aforementioned industries, generated ~1.96b Euro of revenue in the first three quarters of 2013, a little over 3b E in 2012 and has an EBITDA margin target of 6-9% (which it was not on track to hit in 2013 as of Q3). According to the company it holds the #1-2 market position in all of the markets it serves, however, investors weren’t so hot on the paper business as it is facing some long term headwinds. Even internally, Valmet ranks its various business’ market outlook and profitability as ‘satisfactory’ at best and mostly as ‘weak’.

Metso will retain its mining, construction and automation business lines which generated ~4.5b E of revenue in 2012. These units have a much higher EBITDA and ROCE target than Valmet making this somewhat of a ‘good’ vs. ‘bad’ asset move. Metso’s former President of its pulp, paper and power business, Mr. Pasi Laine, is now President and CEO of Valmet ensuring continuity at the top. Matti Kähkönen will remain President and CEO of Metso.

Although a study of the breakup was officially announced by the company back in March 2013, the idea goes back a long way. In 2005, Carl Icahn and Cevian Capital pushed Metso to break itself up, but the idea didn’t get enough traction. Cevian hung around though and has been increasing its stake in the company over the years and is now one of Metso’s largest shareholders. Talk about patience. Apparently the businesses have matured enough over the past 8 or 9 years to the point that it makes sense to split them up. At least that is what Solidium, another one of Metso’s largest shareholders, is saying. Interestingly, Solidium, Cevian and a couple of the other top shareholders have received spots on Metso’s Nomination Board. The breakup plan was ultimately approved by the board in May 2013 and shareholders gave the go-ahead at the company’s EGM in October.

Norwegians may remember the name Valmet as the predecessor to Metso. The old Valmet was formed back in 1951 when, according to Wikipedia, ‘the state of Finland decided to group their various factories working on war reparations to the Soviet Union under one company’. Metso eventually came about through Valmet’s merger with Rauma in 1999. According to Mr. Laine, Valmet “is already historically familiar to people and it is associated to high quality and reliability. This is an excellent basis to start building the company’s recognition and corporate image globally.” Certainly true, but don’t fret that the company is only invoking nostalgia in its marketing plan as it also very focused on the future. At least that is the message its brand new corporate logo – ‘a green, forward-pointing arrow emblem with the word Valmet in steel grey’ – is preaching. That arrow also ‘conveys a customer-focused and strong forward looking company with sustainability as a success factor.’ Oh boy.

Both names have been trading down since the demerger took effect, although Valmet is down a bit more at over -10%. For additional information on the transaction and the companies, check out the prospectus or the recent Capital Markets Day presentations (Valmet and Metso). As an aside, it might be worth keeping an eye on Cevian Capital as they have been involved in numerous European demergers, including Cookson’s recent breakup

Disclosure: Author holds no position in any stock mentioned.