SCA to Spin Off Faster-Growing Hygiene Business; Shares Soar

Updated on
  • Stock gains 13%, biggest rise in more than seven years
  • Transaction will create a new hygiene-products supplier

Svenska Cellulosa AB plans to spin off its faster-growing hygiene unit into a new listed company, a move that the Swedish maker of Velvet tissues and Cushelle toilet paper says will increase the value of the business and its forestry-products operation.

Shareholders will receive stock in a new hygiene company to be based in Stockholm, while the forest-products business will keep the SCA name, the 87-year-old company said in a statement on Wednesday. SCA gets about 85 percent of sales from tissues and personal-care goods, which grew 13 percent and 11 percent respectively in 2015. The rest comes from forest products such as paper and pulp, which rose 5 percent.

The shares gained as much as 13 percent, the most in more than seven years, and traded at 275.80 kronor as of 11:24 a.m. in Stockholm, the highest on record.

“We will have two very attractive separate listed companies on the Stockholm stock exchange,” Chief Executive Officer Magnus Groth, who will be head of the new hygiene company, said on a conference call. “The link between these parts of the business had become less and less important.”

While the idea of a split has been raised in the past, it was repeatedly dismissed by former CEO Jan Johansson, who said he was unconvinced of the potential benefits in separating the hygiene business from SCA’s forest lands, paper and pulp mills. His departure, along with the exit of veteran chairman Sverker Martin-Loef, paved the way for change. Groth, who became CEO in March 2015, announced five months later that the company would be separated into separate hygiene and forest units, raising investor hopes for the prospects of a split.

“After years of waiting, the transformation journey of SCA is going a step further,” JP Morgan analysts said in a note to clients. “This will allow management to market the listing of the hygiene company in its own right so as to raise its profile with investors.”

SCA, Europe’s largest private forest owner, will put together a proposal in time for a shareholder vote at the annual general meeting next year and will seek to complete the split by the end of next year. Holders of SCA’s A- and B-class shares will receive their respective equivalents in the new hygiene company and the company’s major shareholders have indicated they support for the transaction, Groth said.

The company hasn’t made any decisions regarding the balance sheets of the two companies and it’s too soon to comment on potential debt ratings, he said.

Ulf Larsson, who is president of SCA’s forest products unit, will be CEO of the listed forest company if the split goes ahead.

“We have now spent the year looking into the strategies of different parts of the businesses, the synergies, the efficiencies and also the differences,” Groth said. “We have come to the conclusion that the synergies are very limited.”

(Updates with CEO comments in fourth paragraph.)
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