Neles/Valmet: buy valve anatomy
Swedish group looks to veto Alfa-Laval’s $2bn bid for Finnish engineer
Neles must wish it could stick one of its emergency valves into its own takeover. These shut everything off when pressure mounts too high. The Finnish engineer has agreed to a $2bn bid from Alfa-Laval. But Valmet, the deadly rival of the Swedish industrial goods group, is trying to shove a spanner in the works. This takes the form of a fat shareholding in its compatriot Neles.
Such “blocking stakes” can allow the owner to veto takeovers of the hapless issuer. Valmet’s has the classic form of just under 30 per cent of Neles acquired on the market. Any more, and Valmet would have to launch a full offer. Instead, chief executive Pasi Laine evidently hopes to drive Alfa-Laval away and transact a merger with Neles paid for mainly in shares.
It does not matter that Valmet’s approach has been heavy on rhetoric while lacking such crucial detail as a share exchange ratio. To make a full takeover, Alfa-Laval needs the support of investors with two-thirds of Neles’s equity — difficult to get with Valmet squatting on the share register.
Large, diversified Alfa-Laval offered €11.5 for each Neles share in August, a 33 per cent premium to the undisturbed price. That valued Neles at over 25 times two-year forward earnings. The deal would give Alfa-Laval exposure to the fragmented industrial valve sector, while its financial firepower would accelerate Neles’s growth plans.
Valmet is smaller and works mostly for Scandinavian pulp and paper manufacturers. A full cash bid would be too expensive, so equity is the main deal currency. The pro forma contribution from Neles to the bottom line of a combined group would be just one-fifth of the total. But on current market values, Neles shareholders might own 35 per cent of the merged business.
Mr Laine must hope to strike a deal somewhere between those two price points — if he can send Alfa packing. Minority investors should demand a share premium at least as generous as Alfa-Laval’s cash offer. Finland’s takeover code meanwhile merits re-plumbing to discourage siege tactics.