Reuters: Hot Stocks: UPDATE 2-Finland's Metso shares jump after spin-off plan

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UPDATE 2-Finland's Metso shares jump after spin-off plan Mar 25th 2013, 10:09 Mon Mar 25, 2013 6:09am EDT * Studying possible spin-off of pulp, paper and power unit * Unit generated about 40 pct of group sales 2012 * Holders to get shares in proportion to Metso stakes * Shares jump 9.3 pct (Adds share reaction, analyst comment, background about business and shareholders) By Jussi Rosendahl HELSINKI, March 25 (Reuters) - Finnish engineering company Metso Oyj is studying the possible spin-off of its pulp, paper and power (PPP) unit, saying the divestment could boost growth and sending its shares sharply higher. The move comes three months after activist investor Cevian Capital flagged it owned 8.3 percent of Metso, having started to accumulate its holding in 2005, and marks the eventual success of its campaign for change which had initially been rejected by the company and other shareholders. Shares in Metso jumped 9.3 percent to 33.66 euros in early Helsinki trade, likely giving Cevian a substantial profit on its stake though it was not immediately clear what average price it had paid. The PPP unit, whose products include paper machines and power plants, generated about 40 percent of Metso's net sales of 7.5 billion euros ($9.8 billion) last year. But its performance has been dogged by a downturn in paper demand. Metso, which last month posted a 3 percent drop in underlying core earnings to 196 million euros, said the demerger would help accelerate growth in both the new company and the remaining units, Mining and Construction and Automation. "Clearer business structures would increase the focus and ambition of the two companies with distinct growth strategies," said board chairman Jukka Viinanen in a statement. The paper machine business, which makes about half of sales of the unit being spun off, has been troubled by a decline in magazines and newspapers as consumers switch to digital devices. Last year Metso slashed some 500 jobs from its Finnish paper units, while the PPP unit overall ended last year with an operating margin of 4.9 percent, compared with about 11 percent at Metso's two other units. GOOD SHAPE Analysts were positive on the demerger. "It is a good move. The PPP business is of a size that would operate well as an independent company," said Juha Kinnunen, head of research at Inderes Equity Research. "It is true that the outlook for the paper machine business is weak in the long term, but the unit is nevertheless in a pretty good shape." The new company would be listed on the Helsinki bourse before the end of this year after a spinoff which has already won the support of Metso's main owners, Finnish state investment arm Solidium, Swedish activist investor Cevial Capital and Finnish pension funds. Cevian had first proposed Metso split in 2005, soon after it had acquired a stake in the company, but the group's other owners rejected the idea that time. "We believe the company will carry out the plan this time," said brokerage FIM in a note. "The news is positive: the new structure allows the value of these very different businesses to emerge better, as investors will have a clearer picture of the new companies' strategy and potential." The demerger would leave shareholders' ownership in Metso unchanged and the owners would receive shares in the new company in proportion to their stakes in the group. The move would be sealed by a shareholder meeting during the second half of this year. Sweden-based Cevian, which recently said had raised its stake in Denmank's Danske Bank A/S, is also a shareholder in companies including truck maker Volvo. It says on its website it has more than 6 billion euros under management and describes its strategy as to invest in companies where there is a "meaningful opportunity to enhance ... long-term value by improving corporate governance, operational performance, corporate strategy and structure." ($1 = 0.7694 euros) (Editing by David Holmes) Link this Share this Digg this Email Reprints

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