Atlas Copco Plans Split in Two to List Mining Tool Business

  • CEO Ronnie Leten to leave and be replaced by Mats Rahmstrom
  • New company for mining equipment could become target: analyst

Atlas Copco AB plans to break itself up and list its mining tools business in the biggest-ever shakeup of the Swedish company that could spark takeover interest.

A newly created mining and construction-equipment company with annual sales of about 28 billion kronor ($3.1 billion) will be spun off in a tax-free distribution of shares to investors, the Stockholm-based company said in a statement on Monday. Under the plan that will see the departure of longstanding Chief Executive Officer Ronnie Leten, Atlas Copco will retain the compressor and vacuum businesses that have revenue of 74 billion kronor.

Ronnie Leten

Photographer: Bart Vercammen/Atlas Copco AB

The move comes a week after Atlas Copco said it was planning to sell a road-construction equipment business as part of Leten’s refocus on products with better profitability and growth. Along with Nordic peers like Sandvik AB and Metso Oyj, Atlas Copco has suffered a downturn in sales to miners as falling commodity prices crimped their investments. Atlas’s mining-equipment business has weathered the downturn better than competitors, according to Swedbank analyst Anders Roslund.

“The new company is a business that a large player like Caterpillar or Komatsu might be interested in buying,” Roslund said by phone. “I don’t think that’s imminent, but it’s an interesting and well-run business.”

Financial Impact

The listing of the mining-equipment business -- planned for the second quarter of 2018 -- may increase its ability to engage in mergers and acquisitions, Leten said in an interview. In recent years, most of Atlas Copco’s M&A activity has involved its industrial tools and compressor divisions. The latter’s scope was broadened by acquiring vacuum technology companies including Edwards Group and OC Oerlikon Corp AG’s Leybold.

“The work will be done now to evaluate, even more, what the strategic opportunities are,” Leten said. “In a bigger organization, if there are a lot of things happening, you may say ‘there’s already too much on the plate, let’s finish this first.”’

Atlas Copco will work toward putting the split plan to shareholders for approval in 2018, according to the statement. The company said it doesn’t expect a large financial impact from the move.

Rather than being a decision to unlock hidden value, the move could be aimed at allowing management to sharpen its focus and to avoid the company becoming a conglomerate, Morgan Stanley analysts wrote in a note.

“The board and management believe that long-term shareholder value will be created,” Chairman Hans Straberg said in the statement. “Both businesses are global leaders in their respective fields and will benefit from a more focused management responsibility.”

Atlas Copco shares rose as much as 3 percent and were trading 0.7 percent higher as of 3:13 p.m. in Stockholm, giving the company a market capitalization of 335 billion kronor.

There is nothing “concerning” about the departure of Ronnie Leten although it could be viewed as negative initially “given the success of the company under his stewardship,” according to the Morgan Stanley note.

During the 7 1/2 years of Belgium-born Leten’s tenure at the helm, Atlas Copco’s share price increased more than three fold. He is leaving at his own request in April, according to a separate statement, and will be replaced by Mats Rahmstrom, a Swede who is currently a senior executive vice president and head of the industrial technique business.

The appointment of Rahmstrom is positive as the industrial technique division “has been a very strong unit,” Roslund said.

For his part, Leten said at a press conference that he has worked “wholeheartedly” toward the split while preparing for his succession.

"I’ve been doing this job for eight years," Leten said. "I’ve created options for the board and if you wait too long these people will look for other options."

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