Sandvik to buy rest of Seco Tools for $939 million

STOCKHOLM: Swedish specialty steel and tool maker Sandvik said on Monday it would buy all remaining shares of its subsidiary Seco Tools for 6.2 billion Swedish crowns ($939 million) as it looks for economies of scale in the face of growing competition and a global slowdown.

Sandvik was hit hard by the downturn in 2009 and said in its third-quarter results it was bracing again for slower economic growth. The firm had already announced a major rejig of its operations aimed at reducing cost and boost efficiency.

Full ownership of Seco Tools, which supplies cutting tools to the aerospace, oil and gas, medical and automotive sectors, will bring economies of scale and lead to faster product development, Sandvik CEO Olof Faxander told Reuters.

"Through the years there have been quite a lot of consolidation in the world around us, and there will for sure be new competitors in developing countries too, so I therefore think now is a logical time to consider buying this minority," he said.

Sandvik, which already controls 60.4 percent of the shares and 89.3 percent of the votes in Seco Tools, said it expects cost synergies of 300 million crowns with the full effect coming in 2014. Faxander said there were opportunities for revenue synergies as well.

"The Seco tools and Sandvik tooling businesses are so similar that you should be able to realize synergies across the whole value chain. So from that perspective it makes a lot of sense," said Michael Hagmann, an anlyst at Nomura Securities.

"But it's a relatively generous price. If you realize synergies of 300 million, in our calculation it still has a small dilutive impact on the fair value of Sandvik", he added.

Shares in Sandvik fell 3.2 percent while the broader Stockholm index lost 1.5 percent. Seco Tools shares rose close to 27 percent. The offer corresponds to a premium of 32 percent based on Friday's closing price.

The deal values Seco Tools at approximately 15.6 billion crowns.

The bid was worth 103.2 crowns per share or 5.95 billion crowns given Sandvik's share price of 86 crowns at 1010 GMT.

Copyright Reuters, 2011