Metso Oyj, the Finnish maker of paper machines and rock crushers, will consider separating its less profitable paper, pulp and power unit into a new company.
Metso would keep the mining, construction and automation businesses in the split, the Helsinki-based company said in a statement today. The study will include aspects such as taxation and financing. Metso plans to announce more details about the potential separation by the end of the second quarter.
Demand for paper machines is weak as papermakers reduce overcapacity by shuttering mills, and the growth of online media has spurred a decline in newsprint. Demand for pulp mills is “satisfactory,” Metso said on its website.
“Clearer business structures would increase the focus and ambition of the two companies with distinct growth strategies,” Chairman Jukka Viinanen said in the statement. “The board also believes that both companies would be seen as attractive investments, which has the potential to increase value for our shareholders.”
Metso rose as much as 3.51 euros, or 11 percent, the biggest intraday jump since July, to 34.30 euros. The stock was up 3.50 euros at 34.29 euros as of 11:59 a.m. in Helsinki. Volume was more than double the average daily trading of the past three months.
The split is positive news for investors, who will get a clearer picture of the companies’ strategy and potential as the new structure better reflects the value of the business assets, FIM Bank Oyj analysts said in a note to clients today. They recommend clients accumulate the shares. Banking and insurance company LaehiTapiola said a spinoff would boost Metso’s stock.
Metso’s paper, pulp and power business had an operating margin of 4.9 percent last year, compared with a margin of more than 11 percent for mining, construction and automation. The unit to be spun off accounted for about 40 percent of revenue and 29 percent of Metso’s earnings before interest, taxes and amortization excluding one-time items.
Metso is seeking growth through service businesses and may make acquisitions to that end as the slowdown in global economic growth caused “massive” mining projects to disappear and hurt order intake, Chief Executive Officer Matti Kaehkoenen said last month.
The new company would be listed on the Nasdaq OMX Helsinki stock exchange, Metso said. A spinoff would leave Metso shareholders’ stakes unchanged and owners would receive shares in the new company in proportion to their Metso holdings, the company said. Shareholders must approve any spinoff in an extraordinary general meeting that would be held in the second half of the year, Metso said.
Solidium Oy, Varma Mutual Pension Insurance Co. and Ilmarinen Mutual Pension Insurance Co., support the study, the company said. Those companies hold 14.6 percent of Metso voting rights, according to the company’s website. Solidium is the state-owned manager of Finland’s equity investments.
Metso has 19 buy, five hold and six sell recommendations from analysts covering the company, according to data compiled by Bloomberg. The average 12-month price estimate on the stock is 35.43 euros.