Sulzer Looks at Selling Metco Unit as 2013 Forecast CutPatrick Winters
Sulzer AG, a Swiss pumpmaker, is exploring a sale of its Metco coatings unit to focus on oil, gas, power and water markets to revive earnings after cutting its full-year forecast. The stock fell the most in 4 1/2 years.
Sulzer is targeting completion of a sale of Metco as early as the first quarter of 2014, Chief Executive Officer Klaus Stahlmann said at a conference in Zurich today, adding that the manufacturer has already hired advisers and information will be sent out to potential buyers at the end of August or beginning of September.
“At some point, we have to decide where to spend our money, where to concentrate our efforts,” Stahlmann said. Winterthur-based Sulzer has operated its divisions fairly separately, so there is “very little carve out,” he said. Funds from any disposal of Metco would be used for acquisitions and investments to expand current operations in its key markets, the company said in a statement today.
Metco, which competes with OC Oerlikon AG and IHI Corp.’s Ionbond division, serves the automotive and aviation industries as well as general manufacturing. It has expanded to become the world’s largest maker of thermal-spray coatings after about 40 acquisitions since 1985.
Sulzer dropped as much as 24 Swiss francs to 142 francs in the biggest intraday decline since February 2009, and was trading down 13 percent at 12:44 p.m. in Zurich. That pushed the stock to a 0.3 percent decline this year, valuing the manufacturer at 4.92 billion francs ($5.24 billion).
Stahlmann, who joined Sulzer from truckmaker MAN SE last year, is selling Metco as part of a strategy for greater cooperation among the three remaining units, which sell pumps, repair services for gas and steam turbines, and equipment for oil refineries. The pumpmaker will operate as “one focused company” in the future, it said today.
Sulzer bought the Metco brand from U.S. laboratory-equipment maker PerkinElmer Inc. in 1994. The division is expanding capacity for ceramic materials to coat parts for airliner engines and industrial-gas turbines, unit head Cesar Montenegro said in an interview published April 9.
Swiss equipment-maker Oerlikon is a potential bidder for Metco, Stahlmann said in an interview in Zurich today. Metco is on sale partly because it can’t gain critical mass and there’s no possibility of buying Oerlikon’s Balzers unit, he said.
A possible merger of Sulzer and Pfaeffikon-based Oerlikon, or of their coating units, has been the subject of industry speculation since Russian billionaire Viktor Vekselberg, the world’s 54th-richest man, started investing in both manufacturers through his Renova companies.
Sulzer named former Continental AG CEO Manfred Wennemer as chairman March 27 to succeed Juergen Dormann, easing concerns over Vekselberg’s dominance. The Russian investor owns a 31.2 percent stake in Sulzer and 47.9 percent of Oerlikon through the Renova group.
Renova representatives are excluded from decisions regarding the sale of Metco, Stahlmann said today.
Sulzer’s first-half net income dropped 23 percent to 99.5 million Swiss francs, the company said. Profit missed the 144.7 million-franc average of four analyst estimates compiled by Bloomberg. Under-utilization of production capacity, changes in the business mix and higher spending on restructuring and computer systems hurt earnings, it said. Earnings before interest and taxes narrowed to 7.8 percent of sales from a 10 percent margin a year earlier.
The company forecast “slight growth” in new orders and sales in 2013, with profitability declining “slightly.” The company had previously forecast moderate growth, with profitability to increase slightly. Sulzer said it’s also reviewing a mid-term target of 6 percent to 8 percent annual sales increases.
Metco has the highest return on capital employed of Sulzer’s divisions and the second-highest operating profitability at 10 percent of sales. The unit is getting a “significant” share of development funding, Montenegro said on April 9.