Atlas Copco plans to split to list mining tools business

Bloomberg

Atlas Copco 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 company with annual sales of about 28 billion kronor ($3.1 billion) will focus on mining and construction-equipment making, and will be spun off to shareholders in a tax-free distribution, 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.
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
Atlas Copco will work toward the plan being put to shareholders 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 Stråberg 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 1.1 percent to 282.30 kronor as of 12:22 p.m. in Stockholm, giving the company a market capitalization of 336 billion kronor. There is nothing “concerning around 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” towards 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.”