(Bloomberg) -- Swedish engineering giant Alfa Laval AB agreed to buy Neles Oyj in a deal that values the Finnish valve maker at roughly $2 billion, setting a price that’s high enough to potentially fight off any counter bids.
After striking a so-called combination agreement with Neles, Alfa will make a voluntary recommended public cash tender offer for all issued and outstanding shares, excluding those held by Neles or any of its subsidiaries, according to a statement on Monday.
Neles’ shareholders will be offered 11.50 euros in cash per share, representing a premium of 33% compared with Friday’s closing price. Neles’ stock traded as high as 12.01 euros on Monday, up 39%, while Alfa Laval gained about 5%. Neles’ biggest owner, Valmet Oyj of Finland, as of yet unrepresented on the board, rejected the bid.
The proposed deal comes as Neles faces other signs of interest from potential buyers. In a nod to that development, the board of Neles said that, even without Alfa Laval’s offer, “there’s no guarantee that Neles will over time be able to continue operating as a fully independent company.” Valmet recently acquired 14.9% of the shares in Neles, and made clear it intends to accumulate more over time.
“The valves business is very fragmented and there’s been a lot of speculation that many around the world are interested in Neles,” said Anssi Raussi, an analyst at OP Group in Helsinki. “It can’t be excluded that someone else would make a counteroffer, but the price is certainly high already.”
Neles is the former flow control unit of Metso, which became a separate company on July 1, when Metso’s minerals unit merged with Outotec to create Metso Outotec Oyj. Alfa Laval said it has identified the industrial flow control market as a key growth area, and that with the transaction, it can “considerably strengthen its presence in the large industrial flow control space,” where it now offers mainly energy efficiency solutions.
“The proposed deal offers a strong industrial logic: Our businesses complement each other well with very little overlapping operations,” Alfa Laval’s Chief Executive Officer Tom Erixon said in the statement. “The match is nearly perfect.”
Meanwhile, Valmet has “fairly low” synergies with Neles, and it would be “difficult” to create shareholder value if it offered to pay this much for the whole company, Raussi at OP said. But Valmet stands to make a “quick buck” if it sells its stake to Alfa Laval, having paid 8 euros a share (even though it needs to compensate the original seller Solidium Oy for at least a part of its gain).
The deal will be financed by Alfa Laval’s own funds and debt facilities from SEB, and is subject to regulatory approvals.
Neles board members who participated in the decision-making process agreed to unanimously recommend the offer; Cevian Capital, which holds a 10.9% stake in Neles, has also accepted the offer. Alfa Laval plans to complete the deal if it gains control of at least two thirds of shares and votes. Even so, Valmet’s Chief Executive Officer Pasi Laine rejected selling up.
“Valmet does not consider Alfa Laval’s tender offer to be beneficial for Neles,” he said, adding the company plans to “continue as an active shareholder of Neles.”
Alfa Laval has been planning the bid for a year and sped up its work when Valmet bought the Neles shares, Erixon said on a conference call. He hasn’t been in touch with Valmet management.
“I should hope that all shareholders including Valmet would find our offer attractive and support it,” Erixon said on a conference call. “I don’t have any intention of calling Valmet today, no.”
(Adds Valmet stance starting in third paragraph)
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