Metso Sees Acquisitions Fueling Growth After Valmet Spinoff

Metso Oyj, the Finnish maker of rock crushers and mining equipment, seeks to expand through acquisitions after it spins off its less profitable paper, pulp and power unit, Chief Executive Officer Matti Kaehkoenen said.

“There is a list of acquisition targets that we will go through and keep an eye on,” Kaehkoenen said in an interview at the company’s headquarters in Helsinki yesterday. “My common sense says there will probably be more opportunities visible” after the demerger.

Metso, which is splitting off paper, pulp and power into a new company called Valmet Oyj, will focus on mining, construction and automation. The sluggish global economy weighs on demand for investment goods, including machinery and equipment. About half of Metso’s 3.5 billion-euro ($4.6 billion) annual mining and construction sales come from services. Its automation unit had sales of 859 million euros last year.

“We want to keep services growth as a high priority,” Kaehkoenen said. “In this field, there are no large acquisitions. On the side of automation -- valves, oil and gas - - there is more space to maneuver. At the moment it seems that oil and gas grow well while the mining industry takes a breather.”

Metso rose as much as 0.6 percent, after falling on the previous six trading days. The stock traded up 0.4 percent at

28.78 euros at 10:55 a.m. in Helsinki, valuing the company at

4.3 billion euros.

Shares Gain

Metso’s mining, construction and automation had an operating profit margin of more than 11 percent of net sales last year, with operating profit growing to 498 million euros. Its paper, pulp and power business achieved a 4.9 percent margin and its profit was 148 million euros.

The new Metso will be less volatile due to less emphasis on large projects, Kaehkoenen said. Shareholders are scheduled to decide on the company split on Oct. 1. Some of its largest owners, including Solidium Oy, Cevian Capital AB, Varma Mutual Pension Insurance Co. and Ilmarinen Mutual Pension Insurance Co., support the demerger, Metso said last week.

Metso’s credit metrics won’t “materially” weaken in the demerger even as less diversification may lead to more volatility, Moody’s Investors Service said last week. The company has a Baa2 grade at Moody’s and BBB at Standard & Poor’s, investment grade at both companies.

“Valmet is the more volatile one,” Kaehkoenen said. “For the new Metso, the share of services, small projects and equipment sales will grow. In this respect, it will be more stable.”

Strengthening Finances

Metso was created in 1999 following the merger of Valmet, then mainly a paper-machine maker, and Rauma Oyj, a maker of rock crushers, pulp machinery and industrial valves. It bought Svedala Industri AB in 2001 for about $1.5 billion to form the core of its mining and construction unit.

“Metso made large acquisitions in the beginning of 2000s, after which the balance sheet has been strengthened systematically,” Kaehkoenen said. The company’s net debt halved to 559 million euros at the end of last year from 2008.

Metso has faced calls to break up since 2005, when Cevian Capital’s co-founder Christer Gardell and U.S. investor Carl Icahn said the mineral and paper equipment divisions don’t provide synergies to each other. The company studied splitting up in 2008 and decided to pull back from the plan due to a turbulent global economy.

“This wouldn’t really have been possible before,” Kaehkoenen said. “During its 14 years, Metso has grown to the extent that all the original businesses are strong enough. One can’t do a split like this with a weak balance sheet.”

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