Sandvik AB (SAND), the world’s largest maker of metal-cutting tools, offered 6.19 billion kronor ($933 million) to buy the rest of its machine-making subsidiary Seco Tools AB (SECOB) to increase technology and distribution synergies.
Sandvik is offering 1.2 new shares for every Seco Class B share that it doesn’t already own, the company said today in a statement. Sandvik already owns 60 percent of the capital and 89 percent of the votes in Seco Tools, a Fagersta, Sweden-based manufacturer of cutting tools.
“We can build a stronger Sandvik and a stronger Seco by buying out the minority,” Sandvik Chief Executive Officer Olof Faxander said in a phone interview. “Today there’s a wall between the two companies where they don’t fully share technological knowledge, production technology and the distribution network.”
The transaction comes amid a major overhaul. Sandviken, Sweden-based Sandvik is reorganizing into five units from three and plans to sell its medical-technology unit. Absorbing Seco Tools should generate 300 million kronor in annual cost savings starting in 2014, Sandvik said.
Sandvik fell as much as 4.6 percent, the most since Nov. 1, and traded down 3.8 percent at 86.05 kronor as of 11:27 a.m. in Stockholm. Seco Tools rose as much as 29 percent, the most since at least 1990, and was up 26 percent at 102.60 kronor.
Seco Tools’s board has recommended Sandvik’s offer and shareholders Alecta Pension Insurance and Swedbank Robur Funds, which together hold 18 percent of the shares and 4.9 percent of the votes in Seco, are supportive, Sandvik said.
The acquisition makes sense as Seco is “pretty much already in the Sandvik family,” said Mats Liss, a Swedbank AB analyst with a “buy” rating on both companies’ shares. “The cost savings looks to be big.”
Faxander said he’d been pondering the acquisition since he joined Sandvik on Feb. 1 from Swedish steelmaker SSAB.
“This was an issue that was on my desk when I came in as CEO, and we have discussed it a lot internally,” he said.
Sandvik hasn’t seen any change in demand compared with the third quarter that ended Sept. 30, Faxander added, reiterating comments from Nov. 1.
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