The purchase, from Koch Industries Inc., stands to add about 1.25 billion euros to the Swedish company’s sales, Svenska Cellulosa, also known as SCA, said in a statement today. The Stockholm-based tissue maker’s shares rose as much as 8.2 percent, the biggest jump in 16 months.
“Consolidation is always good for improving profitability,” said Claes Rasmuson, an analyst at Swedbank. “The price looks okay and it strengthens SCA’s position.”
The purchase comes after SCA on Oct. 25 said it plans to cut 2,000 jobs to improve profitability at its hygiene and packaging units, reflecting a strategy to focus more on consumer products. The acquisition would bring SCA’s European market share to 35 percent in consumer tissue, and 30 percent in tissue sold to hotels and restaurants.
The European tissue business has about 5,000 employees and 15 production sites in seven countries. Koch Industries acquired Atlanta-based Georgia-Pacific in 2005. Consumer tissue accounts for about 60 percent of the purchased operations’ sales, and the bulk of those products are branded as opposed to private-label items, SCA said.
SCA expects the deal to be completed in “some months” after approval from competition authorities, SCA Chief Executive Officer Jan Johansson said.
“We’re strengthening ourselves in areas where we are not strong geographically today and we’re also consolidating a fragmented tissue market,” Johansson said today in a phone conference. It’s too early to say if SCA will be forced to divest assets in some countries to get regulatory approval, he said.
Consolidation is always good for improving profitability and there shouldn’t be a problem from a competition authority perspective, analyst Rasmuson said.
SCA makes Tempo tissues, Libero diapers as well as printing paper and packaging material. It reported third-quarter net income that fell 7.1 percent to 1.28 billion kronor, less than analysts surveyed by Bloomberg had predicted.
Georgia-Pacific’s European tissue operations have margins on earnings before interest and tax that are on a similar level to SCA’s existing business, it said. The cost savings of bringing the two businesses together are estimated at 125 million euros, with full effect in three years after closing, the company said. Related costs are estimated at 130 million euros.
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