SCA acquires Metsä Tissue and Metsä Corrugated and divests
shareholding in Modo Paper
SCA is selling its 50% shareholding in Modo Paper to Metsä Serla. At the
same time, SCA is acquiring Metsä Serla's 65% holding in Metsä Tissue. In
addition, SCA is acquiring Metsä Serla's entire corrugated board
operation, Metsä Corrugated. Metsä Serla's production of containerboard is
not included in the transaction.
The sale price for SCA's shares in Modo Paper amounts to SEK 6,500 M,
corresponding to a debt-free valuation of about SEK 19,000 M for the
entire company. Simultaneously, Holmen is divesting its entire holding to
Metsä Serla on identical terms as SCA.
The acquisition price for the Metsä Tissue shares that SCA is buying is
EUR 15 per share. The intention is that a corresponding offer will be made
to holders of the outstanding shares. The acquisition is contingent upon
SCA obtaining at least 90% of total number of shares. After today's
transaction, SCA's total holding amounts to about 85%.
With consideration taken to SCA's previous acquisition, the purchase price
corresponds to a debt-free valuation of about EUR 650 M for the company.
In addition, SCA is acquiring 100% of Metsä Corrugated, which corresponds
to a debt-free valuation of the entire company of about EUR 200 M.
The acquisition of Metsä Tissue is based on a sales multiple for the year
2000 of 1.0 and on a operating surplus multiple of 6.4 calculated on the
sustained earnings capacity that SCA estimates Metsä Tissue can achieve
under SCA's ownership. This corresponds to a gross margin of 15%. During
the period from 1996 to 1999, the margin amounted to 12%. During the same
period, SCA's margin was 15%. For the year 2000, Metsä Tissue anticipates
that the gross margin will amount to about 6%. The lower margin is due in
part to a time lag in compensating for rapidly increasing prices for raw
materials and in part to restructuring measures within acquired German
The acquisition of Metsä Corrugated is based on a sales multiple for the
year 2000 of 0.8 and on a operating surplus multiple of 5.8 calculated on
the sustained earnings capacity that SCA estimates that these operations
can achieve under SCA's ownership. This corresponds to a gross margin of
12%. The average gross margin for the period from 1996 to 1999 was 9%,
which was the same as for SCA during this period. For the year 2000, Metsä
Corrugated estimates that the gross margin will amount to 8%.
As can be seen, SCA estimates the synergies at about 3% of sales in the
acquired companies. Calculated on the basis of historical earnings, the
acquisition of Metsä Tissue is thus being implemented with an average
operating surplus multiple of 8.0 pro forma (based on the current scope of
operations). For Metsä Corrugated, the corresponding multiple is 7.7 pro
forma. The acquisitions meet SCA's weighted capital cost.
The sale of Modo Paper is being implemented at a operating surplus
multiple of 9.9 for 1999 and 5.4 for the year 2000, based on a consensus
forecast for Modo Paper. The price that SCA is receiving for the divested
shares exceeds their book value by SEK 2,800 M.
On a debt-free basis, the sale of Modo Paper is being implemented for
SCA's part at a level of SEK 9,500 M. The total cost of the acquisitions
is EUR 850 M, corresponding to about SEK 7,000 M. SCA's net debt, however,
is only marginally affected in relation to the situation at the end of the
last quarter, since SEK 3,000 M of the debt in Modo Paper has already been
eliminated in the consolidated accounts, while payments for the purchase
of about 20% of the shares in Metsä Tissue amounting to about SEK 600 M
were made previously. The capital gain amounts to SEK 2,800 M after tax,
or SEK 12.10 per share. Further one-time effects may arise as a
consequence of possible divestments and structural costs. During the
second half of year 2000, the two acquired operations are expected to
create a marginal dilution in SCA's earnings per share, taking into
account goodwill amortization and interest on the purchase price. Earnings
per share will improve, however, as the acquired operations are developed
and synergies realized.
The decision to divest Modo Paper is completely in line with the SCA
Group's stated objective of consolidating operations to three core areas:
Hygiene Products, Packaging and Publication Papers. SCA's commitment to
fine paper operations have been extremely limited in a historical
perspective. In 1980, sack paper production at Wifstavarv was converted to
uncoated fine paper in rolls. The project was conducted as a joint venture
with the German partner PWA. SCA eventually assumed full ownership of this
operation. In 1995, SCA acquired PWA, including its fine paper operations,
for which profitability was highly unsatisfactory. A radical improvement
plan was implemented, primarily intended to develop the value of the
acquired operations. These efforts were successful, and a significant
increase in profits was achieved in both paper and merchant operations.
Operations were concentrated increasingly on coated papers in sheets. In
1999, collaboration was initiated with MoDo that offered synergies. The
assessment at that time was that there was little interest in any major
industrial merger among Europe's major players in fine papers. For that
reason, work focused on taking Modo Paper public. This initiative was
aborted in March 2000, however, due to the extremely low valuation that an
exchange listing would have offered the sellers of the shares. The fact
that an opportunity for a structural transaction is now at hand means that
a value has been achieved which reflects the full value of the earnings
capacity of Modo Paper and that the company in combination with Metsä
Serla's other fine paper operations can be developed further to constitute
the core unit in one of Europe's largest fine paper operations. This in
turn strengthens the company's long-term development prospects and creates
greater security for the employees.
For SCA, the acquisition of Metsä Tissue and Metsä Corrugated offers a
unique opportunity to develop the Group's Hygiene Products and Packaging
business areas in the Nordic region. Within Tissue, Nordic operations will
more than double, while tissue operations on the European continent will
increase by around 25%. SCA's total Hygiene Products operations in the
Nordic countries will increase by approximately 40%, which means a
significant improvement in the company's relative position in the category
for disposable products for personal hygiene for both retail and
institutional customers. These operations will be further strengthened by
the recently announced partnership with Johnson & Johnson, through which
SCA's Nordic sales organization will also sell Johnson & Johnson's entire
consumer program in the Nordic region. Total sales are expected to exceed
SEK 6,000 M. In addition to the fact that the Nordic region is showing
ever-better growth, this is of great importance for product development,
not least in view of the high level of consumption of hygiene products
unique to this region. Expanding operations to Finland also create more
favorable opportunities for development of the St Petersburg region and
the Baltic countries. During 1998, SCA acquired the tissue plant in
Svetogorsk, which is located on the Finnish-Russian border.
Within corrugated board, SCA gains access to the Finnish market with a
market share of about 30%, thus making the company's Nordic coverage more
complete. In addition, SCA attains leading positions in the Baltic
countries through this acquisition, as well as well-established operations
in Russia in both the St Petersburg and Black Sea regions. It is intended
that the latter operation be developed in cooperation with SCA's business
partner in Turkey. The acquisition also includes significant operations in
Denmark and Greece.
Metsä Tissue's total production amounts to 445,000 tons, with raw material
requirements totaling 260,000 tons of pulp and 225,000 tons of recycled
fiber. SCA's total tissue capacity thus increases from 1,130,000 tons to
1,575,000 tons, corresponding to 38%. Metsä Corrugated's production
amounts to 413 million square meters. The corresponding figure for SCA is
4,300 million square meters. The raw materials requirements for the
acquired operations are 267,000 tons of paper. With this acquisition, SCA
achieves its objective of becoming completely integrated in paper
All of the transactions are subject to EU approval. In regard to the fine
paper and corrugated board transactions, the buyers have pledged to
implement any divestments required from a competition perspective. SCA's
commitments in the tissue transaction are limited in this respect.
Stockholm 31 May 2000
SVENSKA CELLULOSA AKTIEBOLAGET SCA (publ)
For further information please contact:
Sverker Martin-Löf, President and CEO. Phone +46 8 788 51 51 or
Sten Lindholm, Senior VP, Corporate Communications. Phone +46 8 788 51 62
Joint press conference - SCA and Holmen - today at 10.30 am, Berns
SCA telephone conference today at 3.30 pm CET (9.30 am EST).
Instructions for participating in the telephone conference:
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2. Wait until the telephone conference starts.
If you are unable to participate but interested in listening to the
recorded conference, you can do so by calling the telephone number +46 8
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